Advice for Canadian internet retailers wanting to do business in the U.S

I see a lot of Canadian retailers right now fretting over the postal strike north of the border. I have some advice to pass along that hopefully might just helps some folks in growing their businesses.

I’m a Canadian and I own a Canadian corporation which is an internet retailer of boating and outdoor supplies. Like most Canadian internet retailers, 90% of my customers are American.

One of the biggest barriers as a Canadian internet retailer is shipping. It can cost up to twice as much to ship a package from Vancouver to Seattle as it does Miami to Seattle (not to mention the potential surprise customers get if they’re ever hit with duties and/or taxes by the carrier). Internet retail can be very cut throat and to say the least, this is a competitve disadvantage. The solution is simple: warehouse and ship your stuff from the states.

We store almost all of our merchandise in a U.S. based Pick & Pack warehouse south of the border. This third party fulfilment companies stores our inventory and ships it for us. We simply email them in our orders every morning and forget about the rest of it.

We do enough volume that we’ve negotiated some pretty favorable rates, but in general, the going rates are about $3-$5 per parcel and then $1/sqft warehousing space. You may think that is a lot of money but if you consider how much money you have to spend on warehousing and logistics staff, the rates are quite competitive. There’s hundreds if not thousands of these fulfillment companies located in border downs all across America. Just google “Pick and Pick xxx-city”.

As a Canadian company, the U.S. and Canada have decades of years of treaties (even before NAFTA) which make it very easy for a Canadian company to do business in the U.S… Basically, if you just want to store your goods in the U.S. and have them shipped it’s about as simple as can be. You don’t need a U.S. business you just technically need to be registered as a Foreign Profit Earning company (take this with a big grain of salt, but many accountants I’ve spoken to over the years agreee it’s pretty easy to fly under the radar if your revenues are fairly limitied, re: $100,000 or under).
As a foreign profit earning corporation you are responsible for filing a U.S. tax return. This tax return will report your income, expenses, and everything else typical with your normal tax return except you will almost certainly be required to pay no income tax- again, Canada and the U.S. have tax treaties eliminating ‘double taxation’. This fact that you probably won’t owe the U.S. Fed any money is a good reason why it’s easy to fly under the radar.

The only hitch with taxes comes with sales tax. If you’re storing your goods in, say for example, Washington State, and you ship to a customer in Washington State, you are legally required to collect WA sales tax and pay it. Again, with an accountants help it’s easy to get registered at the state level (expect to pay around $1000 for everything) although it’s one more headache to worry about. If you’re getting your feet wet into fulfilling your items from the U.S. and selling a few thousand dollars a year of merchandise, I wouldn’t worry about getting completely legal (the tax man has bigger priorities than the new learning business who missed paying $95 in sales tax). Once you start doing any kind of volume though definitely get your ducks in a row!

As your little operation into the U.S. gets underway you’re going to have to make trips to the states to do certain things like talk to fulfillment companies, check on your merchandise, etc… This becomes a very gray area for Canadians without work visas. You can go to fulfillment companies and talk to them all you want, pay bills, etc. but you can’t technically do things like move your merchandise (if you move one box of widgets you’re now working in the U.S.). You can go to trade shows in the U.S. and show off your products and go back to Canada and sell them to U.S. companies but you can’t actually sell anything while you’re on U.S. soil. These little ‘catches’ go on. I mention this because you’re probably going to find yourself working illegally in the states, knowingly or not. I can assure you the department of homeland security has bigger priorities than ensuring Johnny Canuck doesn’t move a widget from point A to B, but nevertheless, if you’re going through the border and you tell them you’re moving a widget from point A to B they’re going to have no choice but to make things a real pain. Better to tell them you’re going to get gas or pay a bill :slight_smile:

In summary, I hope this opens Canadians eyes to how easy it is for a Canadian company to do business in the U.S. (if I’ve been able to do it, it’s the biggest testament to this!) The U.S. and Canada have the largest trading bloc in the world simply because of this ease.

Bringing this back to life. I am in the process of trying to do something similar. Merchandise storage in Buffalo but running my webstore from Canada.
I´m still gathering information though. I´m not sure how clients would pay, into Canadian or U.S. account.
If you have any information that might lead me down the right path i would appreciate it.


Do you mean a USD account or CAD account?

For currency it should almost certainly be USD (everyone expects online transactions to be USD, including Canadians).

It’s probably easier to talk to a bank in Canada (or Moneris) for your credit card processing if your company is smallish. The US banks tend to ask for a lot of stuff you’re not going to have, like a US Tax-ID number, etc.

The webstore shows varios currencies depending on what your preferences are but since most of our possible clients will be in the U.S. it will show USD.
Right now my possible business partner and i are looking at registering an LLC company in Buffalo and crossing over to send shipments and just running the website/processing orders from Toronto. But this raises doubts. If i am an e-retailer in Ontario with my product in the U.S. i suppose we would have to register the company in Ontario as well if we receive payments in a Canadian bank.
I ran into your post researching different ways to do this and maintain costs low (Shipping from Toronto to the US was painfully expensive as most of our products our big and bulky) and you seem to have a viable way of doing this that might be an option for us. If we ever get this off the ground, we would be very a very small outfit with only 7-8 products to start with.

Some comments:

  1. Are you both Canadian and working from Canada? Most people (and more importantly, the CRA) would deem that you are a Canadian business that is simply fulfilling orders from the U.S… Where you are shipping products from doesn’t normally determine what area your business is based in (but it does determine sales tax collection).

It’s hard concept to absorb that shipping products from the U.S. doesn’t necessarily make you a US company.

  1. Registering a LLC in Buffalo is probably not what you want to do. Again, if your so called ‘mind and management’ is in Canada, you’re a Canadian business. All you need to do is collect and remit NY sales tax (relatively easy to get registered a foreign company doing this- simply call the NY department of revenue and they can help you).

  2. I believe driving across the border and shipping packages is OK (my only backup for this belief though is that I know other people do this). However, assuming it is OK you are opening yourself for a lot of hassle. Aside from border wait times, if you do a lot of business you may get called in to pay duty every time. I believe you also have to pay an ‘access fee’ of around $10US if you’re crossing the border for business purposes like you are and they may start to make you go through the commercial border crossing (which can be worse than the public crossing).

Long story short, call any mail delivery service in Buffalo and probably half of them will be happy to store your items for you and ship them out for you for a modest price. Much easier (and probably cheaper).