Anytime you conduct business within the U.S. or with U.S. based customers, you should consider the various federal and state tax implications that may apply to your business.

Generally, a foreign business is subject to U.S. federal income taxes if that business is engaged in a U.S. trade or business and has income effectively connected (ECI) with such U.S. trade or business. If your only connection to the U.S. are sales to U.S. customers, that is generally not enough to create a taxable nexus with the U.S.

Factors that may create a U.S. trade or business with effectively connected income may include, but are not limited to, having employees based in the U.S., a fixed office location in the U.S. and if you are personally traveling to the U.S. to perform the work.

The other issue is whether tax treaty benefits may apply. Assuming you qualify for treaty benefits under the U.S.-Canada tax treaty, Canadian businesses are only subject to income taxes in the U.S. if they operate a permanent establishment in the U.S., as defined in Article 5 of the tax treaty.

If it's determined that your company is engaged in U.S. trade or business and is subject to income taxes, you'll be deemed to operate a branch in the U.S. A foreign corporation with a U.S. branch needs to file a Form 1120-F and report it's U.S. effectively connected earnings.