Taxes for Canadian businesses in Texas

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Taxes For Canadian Businesses in Texas

Auguest 19, 2021

Question:

What state taxes does a Canadian business pay in Texas?

Answer:

Sales Tax

The state sales tax rate in Texas is currently 6.25%. Depending on local municipalities, the total tax rate can be as high as 8.25%.

Use Tax

The use tax rate in Texas is currently 6.25%.

Unemployment Insurance (Payroll Tax)

If you have employees working in Texas, you must pay unemployment taxes on their gross wages up to the taxable wage base ($9,000 as of 2020). The tax rate varies from 0.31% to 6.31% depending on your experience rating.

Corporate Income Tax

There is no corporate income tax in Texas.

Discussion:

If you remain under certain thresholds in this state, you are not responsible for taxes.

Tax	Threshold
Sales	$500,000
Use	$500,000

Availability of Treaty Benefits

Use taxes are often treated as income taxes by the Canadian government when calculating income in Canada and applying for foreign tax credits. Meaning, if you pay use tax in the USA but have no net profit, you will not benefit from a tax credit theoretically. The actual application is a bit more complex.

Income taxes in the USA are almost always treated as income taxes by the Canadian government. Thus, in the majority of cases, if you pay tax in the state, you don’t pay tax again in Canada unless the Canadian rate is higher.

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Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.