Amazon Sales Tax in Canada and in the US: Facts To Know as a Seller

Michael Pignatelli
Nov 24, 2022

It must be every online seller’s dream to launch a successful store in the world’s largest ecommerce platform. What a thrill it is to be officially tagged as an Amazon seller! The beauty of opening a store on Amazon is the endless possibilities and growth, especially for sellers in Canada. You can begin selling within Canada, and later on, you can expand your scope and sell to US customers too. 

However, before you get to this point, you’ll need to know some complicated information. Let us help you prepare for one of the most dreaded tasks you’ll handle as an Amazon seller—sales tax! This article will discuss facts about Amazon Canada sales tax and Amazon US sales tax. Read on to stay informed!

Facts on Amazon Sales Tax (Canada)

There is no shame if you aren’t well-versed in the sales tax laws of your own country. As you read through the information below, you’ll realize that Canada has complicated sales tax laws. But you’ll have to learn them to know how to charge your customers online.

Canada Charges Different Taxes

To understand sales taxes in Canada, you must first know the differences between these four different types of sales tax.

General Sales Tax (GST)

This is the 5% sales tax applied to eight provinces in Canada, namely Alberta, British Columbia, Manitoba, Northwest Territories, Nunavut, Quebec, Saskatchewan, and Yukon. 

Provincial Sales Tax (PST)

PST rates vary per Canadian province and are charged on top of GST. British Columbia and Manitoba charge 7%, Saskatchewan 6%, and Quebec (where it is known as QST) 9.975%.

Harmonized Sales Tax (HST)

Five provinces combine GST and PST into one sales tax called HST. New Brunswick, Newfoundland and Labrador, Prince Edward Island, and Nova Scotia charge 15% HST, while Ontario charges 13%. 

Quebec Sales Tax (QST)

Quebec charges 9.975% QST on top of the 5% GST. (See information underneath “Provincial Sales Tax”).

Marketplace Tax Collection (MTC) Applies in Canada

When selling on Amazon, you must familiarize yourself with the Marketplace Facilitator (MPF) Law. This law cites that third-party sellers like Amazon should handle the collection, filing, and remittance of sales taxes

There was a time when Canada wasn't covered by this law. Thankfully, MPF now applies to the country. Unless otherwise declared by specific provinces, Amazon will handle the collection, filing, and remittance of the sales taxes charged to your customers. All you have to do is to track and check to ensure accuracy.

Base the Sales Tax Rate on Where Your Client Is

Canada has a simple rule regarding which sales tax rate to follow—use the sales tax rate of the package’s destination. For instance, you must charge a 5% sales tax if your client is in Alberta. Do not be confused with the sales tax of your location. If your business is in Ontario, where the sales tax is 13%, it won’t apply to your customers unless they reside in the same province as you.

Canada Has Tax-Exempt Groups and Individuals

Another area you should be familiar with when selling on Amazon are tax exemptions. In Canada, there are three basic instances when buyers can be tax exempted:

  1. Business Income Below $30,000: Buyers who are manufacturers can show that their worldwide business sales do not reach $30,000.
  2. Seller of Essential Goods: Almost all products sold on Amazon are taxable, except essentials and groceries. If Canadian law classifies goods as tax-exempt, buyers shouldn’t be charged sales tax.
  3. Special Groups: Canadian government employees, members of indigenous groups, diplomats, and other groups and individuals classified by Canada as tax-exempt should be absolved from paying taxes.

Facts on Amazon Sales Tax (US)

How do you find Canadian sales tax? Just like any new information, it may be confusing initially, but as you continue exposing yourself to the task daily, you’ll learn the ropes. And as you master Canadian sales tax, familiarize yourself with Amazon US sales tax too. For online sellers like you, expanding to a neighboring country is an ideal game plan for your business’s growth. 

Sales Tax Rules Depend on the State

The United States has 50 states, each with its own sales tax rates, rules, and regulations. Unlike Canada, where the package destination is the basis of the sales tax rate (unless stated otherwise), US states have different rules. 

Some states base the rate on the package's source and others on the destination. Hence, aside from the different rates, check whether to apply the rate in the location of your business address, or the rate of the state where your customer resides. 

The US Also Follows Marketplace Facilitator

MPF started in the US, and when you sell here, Amazon will collect and remit sales taxes for your business. This is helpful to Canadian sellers like you who might be confused about America’s tax laws. 

Despite the presence of MPF, be knowledgeable about the US “sales tax nexus.” You must think that since your business is in Canada, you won’t need to file sales taxes. In the same way, you might think that storing your products in an FBA warehouse in the US does not make you liable to sales taxes. 

A sales tax nexus will compel you to file sales taxes as long as they see any connection of your business or any company resources to the US. For further information about sales tax nexuses, it is best to read about US sales tax laws.

The US Also Has Tax-Exemptions

Like in Canada, there are also tax-exempt individuals and groups in the US. Government workers, diplomats, non-profit organizations, charitable groups, and members of indigenous groups are tax-exempt. 

For these clients to enjoy their benefits, they must upload a tax-exempt certificate and other necessary documents to Amazon. Amazon will be the one to process the documents through the platform’s Tax-Exempt Program.

Get Sales Tax Assistance From Unloop

Whether you are only selling in Canada and planning to expand to the US, or you are already selling in both countries, it’s important to be aware of the sales tax requirements of both countries. As a seller, it's also important to stay up-to-date on any changes and ensure you're tax compliant. If you’re still unsure of how to navigate the ins and outs of sales tax in either country, our team at Unloop can help. We offer various services to eliminate the hassle of staying compliant with ever changing sales tax laws. We can provide comprehensive financial management assistance so you can focus on growing your business. Contact us today to learn more about how we can help you streamline your operations and keep your business running smoothly.

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About unloop

Unloop is the first and only accounting firm exclusively servicing ecommerce and inventory businesses in the US and Canada. With the power of people and technology, our team dives deep into COGS and inventory accounting.. You are paired with a dedicated bookkeeping team that prepares accurate financial statements, financial forecasts, and can also pay bills or run payroll for you. Come tax time, everything is organized and ready to go, so you don't need to worry. Book a call with an ecommerce accountant today to learn more.

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