{"id":9909,"date":"2021-07-06T08:31:07","date_gmt":"2021-07-06T06:31:07","guid":{"rendered":"https:\/\/ca.syspro.com\/blog\/?p=9909"},"modified":"2025-03-19T08:49:12","modified_gmt":"2025-03-19T06:49:12","slug":"2021-u-s-tax-changes-that-canadian-manufacturers-must-know","status":"publish","type":"post","link":"https:\/\/ca.syspro.com\/blog\/erp-for-finance\/2021-u-s-tax-changes-that-canadian-manufacturers-must-know\/","title":{"rendered":"2021 U.S. tax changes that Canadian manufacturers must know"},"content":{"rendered":"

COVID-19 has hit every manufacturer differently. We\u2019ve seen businesses pivot, move to a remote workforce, shift focus to online sales, build new products and enter new markets.<\/p>\n

If you are a Canadian manufacturer selling in the U.S., you have probably also noticed state and local governments south of the border changing too. From tax rate reductions that provide relief to economically stricken businesses, industries and sectors; to new taxes levied on services like digital advertising and remote employees; it is difficult to keep up with all the changes.<\/p>\n

Compliance with these tax changes is not optional. It is up to each individual business to determine which changes apply to them. And this can be tricky, especially when tax law shifts quickly \u2013 and often.<\/p>\n

Let\u2019s have a look at the changes you should be aware of.<\/p>\n

6 ways U.S. states may recoup lost tax revenue<\/strong><\/h2>\n

As COVID-19 changes the way manufacturers do business, it also changes the amount of tax that states collect. Business closures and high unemployment have resulted in lost tax revenue, leaving many state-level governments grappling with deficits that are likely to exceed $500 billion<\/a> over the next two years.<\/p>\n

One important change is the introduction and strengthening of economic nexus laws, which levy taxes based on a commercial<\/em> connection to a specific state, rather than a physical presence<\/em>. In a recent webinar, Ronny Fritz, Product Solutions Engineer with Avalara<\/a>, shared a few other changes you should be aware of:<\/p>\n

1) Broadening the tax base to include more goods and services<\/strong><\/p>\n

We\u2019re already seeing a growing trend in many states toward taxing products and services that previously have been tax-exempt, either by expanding what goods and services can be taxed or by recategorizing products so that they\u2019re taxable. Though expanding sales tax is administratively simple for states to implement, it can be a hard sell, with varying degrees of success. Wyoming, for example, tried to introduce new taxes on groceries, only to have it voted down.<\/p>\n

2) Identifying unregistered remote sellers<\/strong><\/p>\n

Even if you don\u2019t have a brick-and-mortar location in a particular state, you could still owe sales tax if you meet certain economic nexus thresholds<\/a>. While the exact parameters vary from state to state \u2013 they could include, for example, total taxable sales, number of transactions or even number of total retail locations \u2013 if you ship to a state, have remote employees there or even store inventory, you could be on the hook even if you aren\u2019t doing taxable sales there. Things get more complex if you do business in multiple states because you could find yourself registering and collecting sales tax in each one.<\/p>\n

3) Passing marketplace facilitation laws <\/strong><\/p>\n

Essentially, marketplace facilitation laws put the onus on marketplaces like Amazon to either directly pay sales taxes or collect them from sellers and provide them to the state. More than 40 states have enacted such laws, and more may be coming. Similar to economic nexus laws, these marketplaces don\u2019t need to have a physical presence to owe sales taxes under a jurisdiction \u2013 they simply need to meet a threshold. And if your product is stored in a marketplace warehouse in a state, that could also count as economic nexus.<\/p>\n

4) Increasing scrutiny on consumer use tax<\/strong><\/p>\n

In cases where there is no sales tax applied, a \u201cuse tax\u201d could be levied by a state on products or services that are stored or consumed there if you operate in a different tax jurisdiction. Common triggers include inventory transfers, promotional giveaways and withdrawing inventory for external use, such as distributing laptops to different locations. \u201cUse tax\u201d discrepancies are easy for auditors to find, so states looking to boost their revenue are increasing scrutiny of this low-hanging fruit.<\/p>\n

5) Florida and Missouri may adopt economic nexus laws<\/strong><\/p>\n

As we write this article, only two states have not implemented economic nexus laws: Florida and Missouri. In Florida\u2019s case, changes are coming; as of July 1, 2021, companies with a sales volume at or exceeding $100,000 (not including exempt sales and services) in the previous calendar year will owe sales tax to the state if they do business there, with or without a physical presence. Missouri is the only hold-out, though there is a House bill before the legislature that could change that.<\/p>\n

6) Pursuing new tax potential from remote employees<\/strong><\/p>\n

In the aftermath of COVID-19, many businesses are saying they won\u2019t go back to the old, in-office way of working. In their new remote teams, existing employees can work in many locations \u2013 and businesses can hire from any location as well. But it\u2019s important to consider that remote employees provide physical nexus in their jurisdiction, meaning you have a tax obligation wherever they are working. A lot of states have hit \u201cpause\u201d on making decisions during COVID-19, but we are already seeing some states announce that remote employees qualify as nexus.<\/p>\n

Other sales tax changes<\/strong><\/h2>\n

In addition to these six methods to increase tax revenue, we\u2019ve seen two major changes in sales tax:<\/p>\n