Cost of Compliance: U.S. Laws Present Taxation Nightmare

(Globe & Mail – David Milstead)

Ecotex Healthcare Linen Service Inc. operated in the United States in the mid-1990s, before the weak Canadian dollar drove it back north of the border. When shifting fortunes for the loonie opened up new possibilities outside of Canada, Ecotex CEO Randy Bartsch knew one of the steps he needed to take was to get U.S. tax advice. Plenty of it.

“Every different local county, state, city and town have different tax rates,” said the head of the Abbotsford, B.C.-based company, which ultimately re-entered the United States through a 2008 acquisition of a business in Tacoma, Wash. “In some places, it can be 4.93%, and across the street, which is also across the county line, it could be 5.19%.”

While Ecotex knew what it was getting into, many other Canadian businesses are caught off guard by the complexity of the U.S. tax system, with its 7,000-plus taxing jurisdictions, Canadian chartered accountants say.

And while Ecotex was clearly going to be paying the U.S. taxman, by dint of owning and operating laundry facilities in that country, many Canadian businesses that have U.S. sales but no physical presence in the United States think they’re off the hook.
That’s not necessarily so.

It all adds up to a nightmarish spider-web of tax rules and regulations that can easily entrap Canadian entrepreneurs. At a minimum, it makes the United States, a country with a reputation for cost-cutting, an expensive place to do business. Read more here.