Hello, I am just getting started with my ecommerce business. I am trying to sell products via dropshipping technique. Now, by some people I was not told anything about legal issues, business registration, etc.

On the other hand, I was told by other people that manufacturers (companies I would do dropshipping with) might ask for my official business name and Tax ID (or resale number). In order to have those, the business must be registered with the government.
I know many websites don't have this, especially if they are selling their own product. However, doing a business with big manufacturers, might require registration of our own business.

My question is, since I am in Canada, and if I market products that are manufactured in US, by US manufacturers, should I register my business in US? Does it make a difference where I am registered (since I won't handle the products anyhow)?

Do any Canadians here know whether I can do the ecommerce without registration of my business? (Because I was told that if my earnings are under $30,000, I don't need to register).
Finally, did your companies ask for Official Business name or Tax ID when you contacted them?

Here in the USA, the minimum you would need is a Resale certificate. This is required by the state in which your business operates for collecting sales tax. When you sign up with manufacturers or drop shippers, they will ask for this to prove that you are a legitimate reseller.

Being in Canada and having the manufacturers here in the US will only make a difference if that manufacturer does not drop ship to Canada. Some manufacturers will ship to Canada, but will not drop ship to Canada. You have to find this info out as this will add some lead time in order for you to get the item. Then you will need to repackage the item and ship it to your customer, which adds additional shipping costs.

As far as the Federal Tax ID, this is needed depending on the way your business is structured. If your business is a sole proprietor, then you can use your Social Security number as your Federal Tax ID number. But if you are married and you and your spouse file your taxes individually, but you are both on the business, it would probably be in your best interest to obtain the Federal Tax ID. I did not have to get a Federal Tax ID until after I incorporated.

This is very dependent on the product you plan on drop shipping. If you are drop shipping clothing or toys or small items, it may be cheaper to have that item returned to you and avoid restock fees from the manufacturer. Also alot of manufacturers require the items be in new / unused / resellable condition. If there is any question of the actual condition, for any reason, you may want to have it shipped back to you so you can inspect it. Lastly, depending on the product you are having drop shipped, many manufacturers require an initial order to be placed. This order must be shipped directly to your business location. If you are drop shipping large items, such as pools, spas, pool tables, etc., that is a different ball game than drop shipping toys, clothing, camping / survival equipment, etc.

Again, here in the states, it does not matter where you register your business, it has more to do with where you are physically located. I am personally, physically located in TN. My website is hosted out of a different state, so in theory the sales actually take place in the state where the server resides. Don't believe it. Your business has to be registered where you are physically located and you must collect sales tax for that state that you are physically located in. Again, this is here for the US. But if you live in Canada, I don't know how you can register your business here in the US as you do not reside or are physically located in the US.

This is for US. I do not know about Canada. I replied because you stated that you were going to use US manufacturers / drop shippers. I do not know of one manufacturer that I deal with that did not want my business name and Resale Certificate before they would talk to me.

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The Sensual Touch Lingerie | High Heels | High Heel Blog

For tax purposes it will. US Citizens/Residents are taxed on worldwide income. I don't think Canadians are. If Canadians aren't and you're dropshipping products from US Distirbutors to US Consumers, then it would probably behoove you to register an LLC in a low tax US State and simply pay the taxes in the US...but it could be a hassle!

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You don't need to register for anything in the US. You certainly don't want to get involved with being taxed there.

Whether you need to register in Canada or not depends on how much you're earning. If you don't register as a business you're supposed to declare any income you make from your activities on your annual tax return.

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Dynamic Software Development
www.activeminds.ca

Hi,

The $30,000 comes into play only with collection of GST. If annual sales are less than $30,000, you don't need to collect. However, you also cannot deduct your input tax credits (GST you paid on products/services to conduct business). There is also the matter of provincial sales tax, regulations vary from province to province. Business registration used to be very inexpensive and I assume it still is. If you are not registered, all payments/commissions for sales must be made payable to you personally as you cannot cash a cheque payable to a business name unless registered.

I would recommend calling your provincial government office to get registration papers. It is likely only a small fee and it would project a more professional image to use a business name rather than your name.

Just my opinion.

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Margaret
Christmas Ornaments by Tree Treasures

Thanks for responses. They help out a lot. As Dave said, I was told something similar, by an accountant here in Canada that I have to register my business in Canada if I earn over $30,000. However, she did not know enough info about resale to give me certain information about my tax responsiblities. What are tax responsiblities for a reseller in Canada?

I guess I am still also curious about the information Canadian resellers would provide to US manufacturers, since we proboably run on different certificates and terminology.

Any information or experience of Canadian, or Canadian-US resale business would be helpful.

Ornamentlady, you have a good point. Registration is defenitely a good way to do business. I am surprised I was not told that at the eCommerce seminars.

mbobic,

Interesting questions. With respect to income tax, you need to keep proper business records and remit provincial tax and GST when due. You also need to include a "Business Activities" statement and declare profits when filing your income tax. As far as sales tax goes, in Canada, the shipper needs to collect sales tax based on shipping address. That is, if someone from the US orders items from us (BC based business) to be shipped to Ontario, we need to collect GST. For an order shipped to BC, we need to collect both GST and PST. I'm assuming (and I'm sure US members can let us know) that the same thing would apply in the US. So, for example, if an Oregon cutomer purchased an item from you that is supplied by a drop shipper located in Oregon, I would think that state taxes would apply.

Another thing to consider is the currency or currencies you would be using on your web site. If you deal in Canadian dollars and drop shippers are US based you need to keep daily tabs on the exchange rate. It has been quite volatile lately. If you deal in both Canadian and US, I think you'll find your bank charges are through the roof. It is quite some time since we looked into selling in US dollars as well as Canadian. But, the additional charges (for accepting credit cards in foreign currency and operating a US bank account) were right out of the ball park for a small business like ours.

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Margaret
Christmas Ornaments by Tree Treasures

This is not true. At lease here in the states. You only have to collect tax in a state where your business is located. Not where your drop shippers are located.

So If I'm located in FL but I have drop shippers in CA, KY, TN and PA I would only have to collect sales tax for orders shipped to FL as that's where I'm located and conducting business from. Now if I also had a store in OH as well FL that I conduct business from then I would have to collect sales tax there as well. It is based on your location not your drop shippers location.

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The Sensual Touch Lingerie | High Heels | High Heel Blog

100% correct. The only caveat you have to worry about would be something like the Jenkins act which really only applies to cigarettes and tobacco products (ie. you wouldn't collect the tax, but you would have an obligation to file the sale in such a manner that essentially the state where your customer resides is informed of the transaction and the tax bill is sent to them) or blanket prohibitions on shipping interstate which applies to certain liquors/wine/spirits shipping to certain states

Technically, the customer is supposed to file and pay 'use tax' at the end of the year. The only time the state gets you on this is on large things that need to be titled, ie. cars; otherwise, trust me, I'd be buying cars in NH!

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Well, I was wrong. Won't be the last time. Interesting differences in tax applications from country to country. Always glad to learn something new. Thanks for setting me straight.

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Margaret
Christmas Ornaments by Tree Treasures

Check with Revenue Canada because the laws for internet sales are screwy. They will give you a ruling on GST. It gets tricky because if drop shipped GST is charged at customs regardless of your GST status. Also check with revCan on the $30,000 because, AIUI, if you go over $30,000 then the GST is due on that whether you collected it or not.

A sole proprietorship is a good idea in Ontario. That also enables you to get a business bank account in your business name. Otherwise most banks won't give you an account in the business name. AIUI, if you register a business in the US you'll have to deal with both countries tax systems. 1 is bad enough, 2 will be almost a full time job!

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Follow me on Twitter! On the Trail with SOSG How I became a Social Media Convert and Twitter and Agents of Influence and now regular poster at Cloudmixer where We're Mixing New Media Ideas.

GST/HST - Drop-shipment rules

Clear as mud??

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Margaret
Christmas Ornaments by Tree Treasures

Yeah... when I posted check with RevCan... I meant call them. Even the revCan employees have a hard time understanding the rules. Usually I've found they need to know exactly what you plan to do.

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Follow me on Twitter! On the Trail with SOSG How I became a Social Media Convert and Twitter and Agents of Influence and now regular poster at Cloudmixer where We're Mixing New Media Ideas.

Hi,
I am from UK and I am in a process to complete my ecommece website and I intend to use US dropshipper to deliver products within USA.
How would that work? Do I need to have LLC ?

Thanks
Harry

"With respect to income tax, you need to keep proper business records and remit provincial tax and GST when due. You also need to include a "Business Activities" statement and declare profits when filing your income tax."

Ornamentlady, it sounds like I am gonna need an accountant! Marketing and web-building is more than one job, let alone accounting. lol

I am somewhat in similar position as Harry. I want my main consumers (and dropshippers to be in US, because that's where most of the world's internet buyers are!!!). According to what I read above:
- GST (federal) and PST (provincial) tax - yes, I'd need to pay both, and keep records to remit.
- Income tax - yes.
- Sales tax - no, I would not pay this one, unless the buyer was in BC.
Correct?

I agree that calling Revenue Agency is the best thing, because you never know when rules might get changed a bit over the night.

In terms of currency, that is another interesting question. I have to figure that one out (Should I sell in Canadian dollars, to make life easier for me? While the price to US buyers won't make a difference, if the price of the products is reflected by US market?)

I guess that will somehow answer Harry's question as well.

Don't know about BC but if the sale is in the US then no GST or Ontario PST is payable. Note if you are hosted in the USA then the transaction is deemed to have taken place in the US for the purposes of GST and Ontario Sales Tax are not payable. Even if the sale is deemed to have no GST or PST payable you MUST pay tax on all profit beyond expenses. Don't forget the Canada Pension (you pay both Employer and Employee contributions). I've never paid Workers comp and I believe that self employed people can start making EI contributions and collect EI next year.

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Follow me on Twitter! On the Trail with SOSG How I became a Social Media Convert and Twitter and Agents of Influence and now regular poster at Cloudmixer where We're Mixing New Media Ideas.

Thanks for your response. The store builder that I am using StoresOnline has lots of currency options. You can set the price in different currencies too and the visitor will have a choice to select the currency and make payment. You just have to think of how are you going to deliver the goods to international customers...

Better way to go tax specialist.