Selling software across the Canada–US border

Sales-tax rules were written for goods crossing a border on a truck. Software sold by subscription to a customer whose location you know only from a billing address is a poor fit, and every jurisdiction has patched the gap differently.

For a Canadian business selling software both at home and into the United States, three separate questions have to be answered — and they have almost nothing to do with each other.

Canadian customers#

A subscription sold to a Canadian customer is a taxable supply, and the rate follows place of supply — generally the customer's business address. Sell from Halifax to a customer in Alberta and you charge 5%, not 14%.

The provincial retail taxes are the wrinkle. British Columbia, Saskatchewan and Manitoba each decide independently whether software is within their tax, and their answers have moved over time — several have specifically extended to digital and cloud services in recent years. This is worth checking against the current provincial guidance rather than assuming the historic "services are outside PST" position still holds for software.

Quebec's QST applies too, administered separately by Revenu Québec.

US customers#

Supplies to customers outside Canada are generally zero-rated for GST/HST: taxable at 0%, and — importantly — you still claim input tax credits on everything you bought to make them.

For a business selling mostly into the US, that produces a structural refund position: no tax collected, full recovery on costs. It is also the strongest argument for electing to file more frequently, because an annual return means waiting up to a year for money that a monthly return returns in weeks.

Zero-rated is not the same as out of scope. The supplies still count toward the $30,000 registration threshold, so an exporter can be required to register while collecting essentially nothing.

US state sales tax is a separate universe#

Here is where Canadian intuition fails. There is no federal US sales tax. There are state taxes, plus county and city taxes layered underneath, and whether you must collect depends on nexus — a connection to the state sufficient to create an obligation.

Physical presence creates it. So, since 2018, does economic nexus: exceeding a revenue or transaction threshold in a state, whatever your physical footprint. Thresholds vary by state, commonly around $100,000 in sales, sometimes with a transaction count as an alternative.

Whether SaaS is taxable at all also varies by state — some tax it as software, some as a data-processing service, some not at all.

The practical consequence: a Canadian company with no US presence can acquire a collection obligation in a handful of states purely by selling well, and will find out only if someone is watching the thresholds.

Income tax is a third question#

Sales tax nexus and income tax presence are unrelated. A US permanent establishment — broadly, a fixed place of business or a dependent agent concluding contracts — creates income-tax exposure, and the Canada–US tax treaty governs how that interacts with Canadian tax.

Collecting sales tax in a state does not create a permanent establishment there. Having a permanent establishment does not tell you whether your product is taxable. They travel separately.

What the books need#

Three things make the rest tractable:

Customer location, recorded and kept. Not just for the invoice — for evidence, months later, that you charged correctly. It is the field that determines the rate, so it deserves the same care as the amount.

Revenue split by jurisdiction. You cannot monitor a state threshold you cannot report on, and reconstructing it from invoices is a bad afternoon.

Each tax in its own account. GST/HST is a liability to the CRA, QST to Revenu Québec, and any US state tax to that state. One combined "sales tax payable" works exactly until the first time you owe two authorities.

Comma keeps sales tax as a per-jurisdiction liability from the moment an invoice is raised, and the customer's province drives the rate rather than a per-invoice decision. What it does not do is US state sales tax — that is a genuinely different system, and a product that pretended otherwise would be worse than one that says so.