By Judy Vorndran
A new Colorado sales tax collection law, HB19-1240, clarifies and codifies several changes to the way sales tax is collected in the state. The new law establishes economic nexus for retailers without physical presence in the state, codifies the destination sourcing rule and implements a temporary small business exception, sets marketplace facilitator rules, and repeals obsolete statutory references to remote sellers.
Beginning June 1, 2019, retailers with economic nexus are required to collect and remit sales tax on purchases made in the state of Colorado. The new sales tax obligations do not apply for sales made prior to June 2, 2019. Economic nexus is defined as a seller without physical presence in the state of Colorado selling tangible personal property, commodities, or services exceeding $100,000 in a calendar year.
The law codifies the use of destination sourcing for state sales tax collection. Tax is to be collected on the goods and services sold based on a buyer’s address rather than the physical location of the business.
For small businesses overwhelmed by the destination-sourcing rule, the law offers temporary relief until an electronic system is in place. For small retailers physically located in Colorado, defined as those with less than $100,000 of taxable sales and services, the law specifies that a small retailer may source its sales to the business’ location regardless of where the purchaser receives the tangible personal property or service until a geographic information system provided by the state is available for the retailer to determine the taxing jurisdiction in which an address resides.
Should a small business exceed $100,000 in sales within Colorado during a calendar year, the business must transition to using destination sourcing rules.
Marketplace seller rules
HB19-1240 provides that businesses selling through a marketplace facilitator such as Amazon or other online entities are exempt from collecting and remitting sales tax. The obligation falls to the marketplace entity that facilitates the sale on behalf of the remote seller beginning October 1, 2019.
Marketplace facilitators like Amazon and Etsy must determine taxes owed by companies that sell through them and then to collect and remit them to various districts, and it codifies a current Colorado Department of Revenue rule that out-of-state retailers must collect and remit sales taxes it they make $100,000 of sales into Colorado in a given year.
Once effective, marketplace facilitators will be required to collect and remit sales tax on behalf of contracted marketplace sellers for the sale of the marketplace seller’s tangible personal property, commodities, or services through the marketplace facilitator’s marketplace. Marketplace facilitators can collect a vendor fee on sales through its marketplace. Marketplace facilitators that can demonstrate “reasonable effort” to obtain accurate tax collection information from the marketplace seller will benefit from audit relief.
Sellers using a marketplace facilitator do not have the liabilities, obligations, and rights of a retailer if the marketplace facilitator is required to collect and remit sales tax on its behalf, including licensing, collection, and remittance requirements.
Simplify advocacy efforts continue
The temporary small business sourcing exception is predicated on the development and implementation of an electronic system to make it easy for business owners to determine the taxing districts of each customer. This technology solution should enable taxpayers to collect and remit sales and use tax to one location and provide a single location for licensing and registering a business.
As a founding board member of the coalition to Simplify Colorado Sales Tax Board that has formed around this issue, HB19-1240 and the creation of a centralized and online sales tax reporting system represent steady movement forward in reforming Colorado’s excessively complex sales and use tax system. The mission of the coalition is to reform Colorado’s complex SALT system and replace it with one that is fair, simple and predictable for businesses.
Be part of real change that relieves businesses, consumers and tax authorities of administrative burden and cost, and potentially increases sales tax compliance across the state. Join me in the Coalition to Simplify Colorado Sales Tax today. Learn more.