Colorado Use Tax Effective July 1, 2017

A Colorado law passed in 2010 aimed at significantly increasing sales and use tax remittance in the state took effect July 1, 2017, after many years of litigation.

The law targets “non-collecting retailers,” better known as “remote sellers,” that sell tangible personal property into the state of Colorado but do not have a physical presence in the state to collect and remit sales and use tax. A remote seller is a business that sells tangible personal property in a state using the Internet, mail order, or telephone without having a physical presence in the state. Physical presence can include a store or office location, having employees or independent representatives solicit sales of tangible personal property, or other activities conducted in a state.

The Colorado Department of Revenue adopted an emergency rule effective July 1 and intends to promulgate a permanent rule later in the year.

Non-Collecting Retailers Impacted

Retailers that have $100,000 or more in total gross sales of tangible personal property (does not apply to the sale of services) in Colorado are impacted by this legislation and must comply with the notice reporting requirements. Retailers that have less than $100,000 in total gross sales in Colorado in the prior calendar year and are reasonably expecting total gross sales in Colorado in the current calendar year to be less than $100,000 are considered de minimis non-collecting retailers and are not subject to the provisions outlined below.

Starting July 1, 2017, a remote seller is required to provide the following information to a Colorado purchaser and the Department of Revenue:

1. A transaction notice to all Colorado purchasers not exempt from Colorado sales and use tax that they have a use tax reporting requirement with the state;
2. An annual purchase summary to all Colorado purchasers by January 31 of each year when total purchases are greater than $500; and
3. An Annual Customer Information Report to the Colorado Department of Revenue by March 1 of each year, outlining the name of the Colorado purchaser, the address of the purchaser, and the total dollar amount of Colorado reportable purchases. No other information about the purchase needs to be provided. 

Options

A non-collecting retailer has two options beginning July 1. The non-collecting retailer can either voluntarily register with the Colorado Department of Revenue to collect tax from the customer and remit to the state or comply with the notice reporting requirements. 

Penalties for Noncompliance

The penalties for noncompliance with the new law can be significant. The penalty for not reporting a transactional notice to each required Colorado purchaser under item #1 above is $5 for each sale. The penalty for not supplying each purchaser with the required annual purchase summary under item #2 above is $10 for each required summary. If a non-collecting retailer fails to file the Annual Customer Information Report or files an incomplete Annual Customer Information Report, the retailer must pay a penalty equal to $10 for each Colorado purchaser that should have been included in the Annual Customer Information Report. Penalties assessed against a non-collecting retailer shall not exceed $1,000 if a complete Annual Customer Information Report is filed within 30 days of the due date. Penalties assessed against a non-collecting retailer shall not exceed $50,000 for failure to file a complete Annual Customer Information Report within 60 days of demand by the Department.

Other States

As a result of the Colorado legislation, several states have passed similar notice reporting requirement legislation over the past year, including the following and their respective effective dates: 

• Alabama, July 1, 2017
• Louisiana, July 1, 2017
• Vermont, July 1, 2017

As a result of Colorado’s notice reporting requirements being upheld through years of legal challenges, other states are looking to adopt similar provisions in current budget cycles. Right now, many states are going through their budget process, and it remains to be seen whether any additional states will adopt and pass similar legislation. States enacting similar notice reporting requirements prior to 2017 include Kentucky, Oklahoma, and South Dakota.

If you have any questions or for guidance on how best to prepare for these additional requirements, please contact Wipfli’s state and local tax experts, Craig Cookle, Linda Feirn, Daryl Ohland, Tara Johnson, Laura Karpo, and Jessica Macklin, or your Wipfli relationship executive.