Cross-border tax for freight brokers: FMCSA authority and the treaty position

FMCSA authority is a regulatory question, separate from tax

A brokerage arranging US interstate freight for compensation generally needs its own FMCSA broker authority — an MC number backed by a $75,000 BMC-84 surety bond — a US federal licensing requirement that exists whether or not the brokerage owes a dollar of US tax. We treat this as step one, because operating without required authority is a compliance problem on its own, separate from and prior to any question about US income tax exposure. Brokerages that route US-authorized loads through a bonded US partner instead of holding authority themselves face a different question: confirming which entity is actually contracting with the shipper and carrier, since that determines who carries the regulatory and tax exposure.

Business profits under Article VII: no US permanent establishment, no US tax

Brokerage commission income — the margin earned for arranging a shipment, as opposed to a carrier's income for actually hauling it — is ordinary business profits under Article VII of the Canada-US tax treaty, taxable in the US only to the extent it is attributable to a US permanent establishment. A Canadian brokerage with no US office, no dependent agent habitually contracting on its behalf in the US, and no fixed place of business south of the border generally owes no US federal income tax on US-lane commissions, even with substantial US revenue. That is a meaningfully different position than a trucking company's transportation profits, which sit under a separate treaty provision built specifically for carriers — a brokerage does not automatically inherit that carve-out just because the freight it arranges crosses the border.

US states do not read the treaty the same way

The federal treaty protection under Article VII has no equivalent at the state level — individual states are not bound by the Canada-US treaty and apply their own nexus rules to decide whether an out-of-state business owes state income or franchise tax. A brokerage with no US office and no federal exposure can still trigger a state filing question in a state where it has a genuinely sustained presence, such as a dedicated sales employee working from home there, though simply booking loads with shippers and carriers located in a state is generally not enough on its own to create that exposure. This is a narrower, state-by-state question we review separately from the federal position whenever a brokerage's US activity starts to look more permanent than transactional.

Carrier paperwork: W-9s, W-8s, and why 1099s rarely apply

Every carrier file should include a W-9 from a US carrier confirming its tax status, and a W-8BEN-E from a foreign carrier operating outside the US, collected as routine vendor onboarding rather than in response to a payment dispute. Despite that paperwork, payments to carriers for freight services are generally excluded from 1099 reporting under the IRS's own instructions, which specifically except payments for freight and similar items — so the forms exist for verification and banking purposes, not because a 1099 filing obligation typically follows. US customers sometimes ask a Canadian brokerage for its own W-8BEN-E to document the brokerage's foreign status for the customer's own records — a routine request, not a signal that anything unusual is happening with the brokerage's tax position.

USD receivables and the practical filing question

A brokerage collecting from US shippers in USD needs those receivables converted and reported correctly on its Canadian T2, a bookkeeping question covered on our bookkeeping page for freight brokers and 3PLs, but it rarely creates a separate US filing obligation on its own. Where we do recommend a protective US filing is a brokerage with genuinely ambiguous facts — a long-standing US-based sales presence, for example — since documenting the treaty position on file is far cheaper than reconstructing it after the fact. The Canadian side of the file, T2 and GST/HST together, runs through our tax services page for freight brokers and 3PLs.