Colorado offers a period of grace for those that need it

Update 9.21.2020: The grace period described below doesn’t bar the Colorado Department of Revenue from collecting taxes lawfully due effective December 1, 2018. Also, Colorado eliminated the transaction threshold effective April 1, 2019.

The Colorado Department of Revenue is in a magnanimous mood. It’s offering both in-state and out-of-state sellers the gift of a grace period. Although significant changes to sales and use tax sourcing rules took effect in Colorado on December 1, 2018, along with new reporting requirements for out-of-state sellers, affected businesses that need more time to comply with the new sourcing requirements now have it. The grace period runs through May 31, 2019.

Comply if you can

That said, the Department of Revenue (DOR) isn’t encouraging retailers to drag their feet.

Although businesses that need more time to update their systems now have until May 31, 2019, to comply with the sales tax sourcing and reporting changes, Executive Director Mike Hartman urges businesses to comply with the new rules as soon as they can: “Despite the automatic reprieve, the Department requests that businesses with the sophistication and capability to collect and remit sales tax on internet sales based on where the good or service is being delivered do so as quickly as possible in advance of the May 31, 2019 enforcement deadline.”

From complex to slightly less complex

Colorado is the poster child for sales tax complexity. It’s one of only a handful of states to allow local administration of local sales taxes (home rule), and it’s the only state that allows the sales tax base in home rule jurisdictions to substantially differ from the state sales tax base.

The DOR has no authority over sales tax in the more than 70 home rule jurisdictions that self-administer local sales tax. Even state-collected home rule jurisdictions (counties, municipalities, and special districts) can choose which of 15 exemption options they’ll enforce and whether to have a service fee or local use tax. On top of that — and the normal changes to rates, rules, and regulations — the state has atypical sales tax sourcing rules (learn more about those here). 

Simply put, there are a lot of moving pieces to the changes affecting in-state and out-of-state sellers.  

Colorado tax authorities would be the first to cop to this complexity. According to Hartman, “No one desires a streamlined and simplified sales tax collection and compliance system more than the Department of Revenue.” The DOR says it’s “making a concerted effort to bring consistency and fairness to sales tax laws for both in-state and out-of-state retailers.”

Sales tax sourcing changes for currently registered sellers

The sourcing changes the DOR is implementing for in-state sellers are a step in the right direction. As of December 1, 2018, in-state sellers must collect based on the sales tax rate in effect at the point of delivery of taxable goods, or the place where the taxable service is received (state, county, and applicable city and special district sales taxes). Under the former system, in-state sellers were only required to collect the taxes they had in common with consumers (i.e., where they both had a physical presence).

The new system is more in step with sales tax sourcing rules in other states — approximately 33 states have similar rules. Yet even this effort at simplification has a twist or two. The new sourcing rules only apply in state-collected jurisdictions — because the DOR has no authority over sales tax in self-administered jurisdictions, it can’t require self-administered jurisdictions to adopt the new sourcing rules. Retailers therefore need to contact each self-collected jurisdiction in which they sell to learn its rules and reporting requirements.

Furthermore, in-state and collecting out-of-state retailers must add “non-physical locations” in their Revenue Online Sales Tax Account for each non-physical location in which they make sales (jurisdictions in which they have no physical presence). Those that were already collecting retailer’s use tax in such jurisdictions as a courtesy to their customers must switch to collecting sales tax and work toward closing their retailer’s use tax accounts.

New reporting requirements for out-of-state sellers

Colorado is also enforcing economic nexus as of December 1, 2018. Out-of-state sellers that in the current or previous calendar year have more than $100,000 in gross sales of products or services in the state, or 200 or more separate transactions delivered into the state, are required to register with Colorado and commence sales tax collection and remittance in all state-collected jurisdictions.

Remote retailers may also be required to collect and remit sales tax in self-collected jurisdictions. It’s up to the jurisdiction and it’s up to sellers to know their obligations. The code of the City of Denver, for example, “requires retailers to collect and remit taxes regardless of physical location.”  

Compliance with Colorado’s reporting statute still required

Finally, the DOR emphasizes non-collecting out-of-state sellers are still required to comply with the state’s use tax notice and reporting requirements for non-collecting sellers: “The reporting requirements for retailers that do not collect tax during the grace period will be strictly enforced.”

For more information, see the following:

• Colorado Department of Revenue
• Form DR1002
• Rule 39-21-112(3.5), Notice and Reporting Requirements for Non-collecting Retailers

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