This is final installment in a series about U.S. tax issues when selling grain in the U.S.
State tax rules tend not to be an issue for Canadian producers, but it depends on each jurisdiction and the volume of business conducted.
Each state has rules about who, what and how to tax activities in their system.
It is not practical to discuss each state’s requirements here, but it is important to understand the common items that can create tax exposure.
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Many states have an income tax-based system. Whether Canadian farmers have compliance and tax obligations depends on various factors.
The common term used in this discussion is nexus, also known as sufficient physical presence. It is the determining factor of whether a farmer must file and even pay income tax in that state.
Nexus is created if you maintain a temporary or permanent presence of people (employees, service people or independent sales/service agents) or property, such as inventory, offices and warehouses.
The temporary presence could be created through employees visiting states to call on customers or prospects.
Nexus is also created once a substantial physical presence is established. This can vary from state to state, ranging from one to several days. The number of days that can create nexus can also vary based on the activity performed in the state.
There are many other ways a state can tax you.
Similar to the permanent establishment situation federally, states can limit the taxable nature of the activities under certain exemption provisions.
Careful consideration should be made if the activities will require registration with the state, filing of tax forms and even tax obligations.
Many states have a sales tax system under which you might need to register and collect. There are also potential farm-based and reseller exemptions in many states, which may be available to Canadian producers.
Not filing a return typically means the statute of limitations never began, which can increase the exposure over time.
Having a conversation with your accountant and/or a U.S. tax specialist to assess the pitfalls in U.S. compliance obligations can save you time and money now and in the long run.
You might need a U.S. immigration permit to enter the country, depending on what you want to do in the United States. Some permits or visas are granted automatically at the border. In many instances, the activities you need to do in the United States trigger this requirement.
Have your passport up-to-date and documents in hand showing you’re not looking to stay in the U.S. long term because border services will scrutinize your intentions while in the country.
There may be instances where you will need a work permit. This requires more up-front work before you can enter the U.S. and perform the activity.
Be truthful about your intentions and activities while in the U.S.
There have been instances where border services have denied producers access because of issues around their documentation, causing the transaction to be delayed and even voided. As well, you could potentially be banned from entering the U.S. for a long time.
Speak with an immigration lawyer about your business trips to the U.S. to ensure that you are on-side with this important requirement.
There are many costly tax pitfalls associated with selling grain into the U.S. The best way to avoid onerous tolls is to fill out all the forms on time and accurately.
Talk to a U.S. tax specialist for details on how to make the most of your grain sales.
See all the columns in this series:
• New rules, new tax pitfalls on selling grain in the U.S.
• Definition of a U.S.-sourced grain sale might surprise you
• Ensure contract states when title passes to U.S. buyer
• Permanent establishment designation may spark taxes
• U.S. grain sales could trigger state tax, immigration issue
