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We are a Canadian-based incorporated business that is about to sell subscriptions to a SaaS, both yearly and monthly.

How do we handle adding taxes to the service? Since we are a Quebec-based business, do we charge our customer the Quebec tax rate? If our client is based in any particular province/state, do we charge the taxes of that province/state?

Of note, we are not actually shipping any products, only delivering a service online, so I don't know if the location of the client matters or not.

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You really need to ask an accountant.

I'm based out of Ontario, so we have HST, which is a combination of GST and PST. As I recall, Quebec does not have the harmonized tax, so the rules will be a little different than Ontario.

Usually in Canada, as far as I've been able to determine, you charge tax based on where the service or good is being provided, that is, based on the location of the purchaser. So if I were to sell a service to someone in Manitoba, I would charge GST (since I'm not registered to collect their Provincial tax). In Ontario, I charge HST, and out of the country, I don't collect anything (I think, I don't do many cross-border sales).

Unless you want to register with each province, the only tax you would therefore need to collect is GST, unless you sell to someone within Quebec, in which case the local rate applies. However, every time I've asked Revenue Canada for a ruling, I get a different answer, since even they don't understand how this is supposed to work.

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I work for a business that sells stuff online from Montreal. No taxes to International clients. GST to all Canadian clients and QST for Quebec residents (on top of the GST). – Faust Feb 22 '11 at 18:20
Sounds about right - according to one version I got from Revenue Canada. Every time I call them, I get another answer about what to charge... – Elie Feb 22 '11 at 21:01
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I'll tell you what I am doing in a personal project, though I am not sure it is right. My software sales are online only and really small -- about $100 a month. All I know I learned from Google.

I'm only worrying about the laws of my state (Massachusetts). I think that I don't have to worry about the tax laws of other states because I only have a presence in my own state. That is why you are not charged taxes for many online purchases.

My state recently changed its laws to charge taxes for online software sales where the seller and buyer are both residents of the state. In my Paypal seller account, I set it up to add Mass. state tax for buyers in Massachusetts.

The U.S. does not yet have nationwide sales tax. Canada may be different.

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Are you selling software, or are you selling a service? In the US (and state by state) software is considered a good that needs to be taxed. A service is not a good, although some services are taxed (photography services for example). – Michael Pryor Feb 11 '11 at 20:39
Yes, I am selling software and collecting tax for sales to customers in my own state. – user6603 Feb 14 '11 at 14:42
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See my answer here for a similar question:

Taxes for Android / iPhone developers?

Basically, for location based taxes such as sales tax, you need to have a physical presence to actually be subject to sales tax. If you don't have a physical presence, then you should be ok at the time of the writing of this post, though the tax law changes every day.

Note: This is not legal advice and does not give rise to an attorney client relationship.

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