Sales Tax on Internet Sales made in the U.S.
Recent coverage of the U.S. Supreme Court hearing in South Dakota v. Wayfair, Inc. has brought attention to the issue of sales tax on internet sales. Currently, the general rule is that state sales tax on internet sales will only apply where the vendor has a physical presence in that state.
The issue in the Supreme Court case is whether the Supreme Court should abrogate the sales-tax-only, physical-presence requirement in Quill Corp. v. North Dakota.
In Canada, there is a similar concept as it applies to our sales tax on internet sales (ie., GST/HST) which, in basic terms, does not apply unless the supplier of the service or good has a permanent establishment ("PE") in Canada. The purchaser of the service is required under the Excise Tax Act to self-assess the sales tax and remit it to the CRA. There is significant non-compliance in this respect. Meanwhile, vendors such as Netflix are not subject to sales tax on their streaming services because their do not have a physical presence in Canada.
Quebec recently announced in its budget that it would be imposing its own sales tax (the "QST") on internet sales separate and apart from the GST/HST regime. They are the only province in Canada to take such a step. There is no indication that the federal government is considering a change to the Excise Tax Act to impose sales tax on internet sales where there is no PE in Canada.
A decision in the Wayfair case is expected before July.
* Bobby B. Solhi is a GST/HST tax lawyer and partner at TaxChambers LLP
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