Colorado Simplifies Sales Tax Requirements in Advance of June 1 Start Date

Colorado’s new sales tax requirements were originally scheduled to take effect on December 1st, 2018. However, after receiving significant negative feedback about the new regulations in a rules hearing and public comment period, the Colorado Department of Revenue established a grace period through May 31st to allow businesses time to adapt their processes. During the grace period, Colorado passed a new law that simplifies some of the requirements, and also established permanent rules in advance of the June 1 effective date.

Transaction Threshold Removed

The permanent rules removed the “200 or fewer transactions” language, thus simplifying the nexus requirements to only include physical presence or sales in excess of $100,000 per year. This is actually a fairly significant change for wineries because many previously chose to register for Retailer’s Use Tax in Colorado if they sold more than 200 transactions but did not meet the $100,000 threshold.

Get Registered Before June 1

The Colorado Department of Revenue recently sent out a letter clarifying that the grace period will end on May 31st. Any out-of-state sellers (including wineries) that either have physical presence in Colorado or sell more than $100,000 on an annual basis must register and begin collecting no later than June 1.

Any wineries that currently hold a Retailer’s Use Tax permit in Colorado and meet the nexus requirements should convert the Retailer’s Use Tax permit to a Sales Tax permit prior to June 1 and begin collecting the state-collected local jurisdiction taxes at that point. Wineries that hold a Retailer’s Use Tax permit but do not exceed the $100,000 threshold and therefore have no nexus under the new rules would have the option of cancelling the Retailer’s Use Tax permit and not collecting sales taxes on behalf of their customers, or converting to a Sales Tax Permit by June 1.

Simplification Bill Enacted

The Colorado General Assembly also passed a bill, SB19, that was signed into law by Governor Jared Polis on April 12th. Based on recommendations from the previously established Sales and Use tax Simplification Task Force, SB19 authorizes funds for the Department of Revenue to create a process to procure an “electronic sales and use tax simplification system”. The system would simplify “certain administrative details of the state and local sales and use tax system for the state and local taxing jurisdictions” and will be paid for by sales tax funds collected from out-of-state sellers that are now required to register for sales tax under the new rules.

Home Rule Jurisdictions

One of the main problems in Colorado is the complexity surrounding “state-collected” and “home rule” local jurisdictions. Those registered for sales tax with the Colorado Department of Revenue are only required to collect the state sales tax, special district taxes, and state-collected local taxes, but not necessarily taxes in home rule jurisdictions. SB19 seeks to simplify this process and encourage the home rule jurisdictions to adopt the new system and therefore, presumably, become state-collected jurisdictions. Although it’s unclear what would happen if the local jurisdictions choose not to adopt the new system, SB19 clarifies that all home rule jurisdictions should “voluntarily” adopt the new system within three years.

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