The Colorado Department of Revenue announced an extension to the new remote seller rules and local sourcing rules governing both out of state and in-state sellers. The new enforcement deadline is May 31, 2019 for both in-state and out of state sellers. The main reason for the delay is to ensure retailers have sufficient time to make the required system changes. For in-state sellers this delay means in-state sellers continue to follow the prior sourcing rules when it comes to local tax. Currently, Colorado retailers are only required to collect the taxes that the customer and the seller have in common. Furthermore, to the extent a business has a presence in a state-administered city and county an obligation exists to collect the local tax. In addition, a business does have an obligation to collect state administered special districts taxes such as the Regional Transportation District, Scientific and Cultural Facilities District and Regional Transportation Authority.
For out of state sellers the new remote seller rules will be delayed (economic nexus reporting described below) as well. However, an out of state seller that does not collect and remit Colorado sales tax during this time period will still be subject to Colorado’s notice reporting statute. The notice reporting rules are onerous and may result in significant penalties if not complied with. Out of state sellers need to review their unique situation to determine if they are better off in registering to collect and remit Colorado sales tax in lieu of complying with the notice requirements.
This summer, the U.S. Supreme Court released its highly anticipated decision in South Dakota v. Wayfair, Inc., a case that has been referred to as the “tax case of the millennium.” In a five-to-four decision, the Supreme Court overturned the physical presence standard set forth in its own decision in Quill Corp. v. North Dakota. In that case, the U.S. Supreme Court ruled that a state could require a business to collect sales tax only if that business had a physical presence in that state.
The Supreme Court’s South Dakota vs. Wayfair decision impacts Colorado sales tax collection requirements in several ways. Not only will Colorado adopt economic nexus requirements and require out-of-state retailers to collect state sales tax starting on December 1, 2018, but it will also implement destination sourcing for local taxes on sales made outside a retailer’s jurisdiction.
Economic Nexus Standards
On September 11, 2018, the Colorado Department of Revenue (CDOR) adopted emergency rules establishing an economic nexus standard for retailers without a physical presence in the state when such a retailer either (1) exceeds $100,000 in gross revenue from sales of tangible personal property or services delivered into the state in the current or previous year; or (2) makes 200 or more separate transactions of tangible personal property or services for delivery into the state in the current or previous year.
This will require out-of-state retailers to obtain a Colorado sales tax license in order to collect and remit sales tax to the CDOR. The CDOR is asking out-of-state retailers to register by November 30, 2018.
Destination Sourcing for Local Taxes
Effective December 1, 2018, retailers will have to collect not only state sales tax, but also State-collected local and special district taxes on taxable transactions. This new sourcing rule applies to not only businesses selling products into the state of Colorado, but also Colorado retailers selling to end user customers within the state. Sales tax will generally be calculated and collected based on the location the purchaser takes possession (point of delivery) of the taxable goods (whether that occurs at the retailer’s brick-and-mortar store or the goods are delivered/shipped to the purchaser’s location). Again, this includes state, special district, State-collected cities, and State-collected counties. Check with the self-collected (home rule) cities and counties for their specific, individual rules.
It’s important to note CDOR will offer in-state retailers a grace period lasting only through March 31, 2019, to comply with the State’s destination sourcing changes.
Colorado has more than 600 sales tax jurisdictions, and determining the specific rates and home rule locations can be time consuming. Colorado has provided links to several certified sales tax lookup services, including some which are free to use.
Colorado is promoting voluntary compliance with this new rule, and Wipfli can help you.
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