Colorado, Home-Rule, and Affiliate Nexus
- May 7, 2013 | Gail Cole
Home Rule State, meaning that there is an added level of complexity in the administration of local sales and use tax in the Mile High State.
Home-rule cities administer and collect their own local sales and use taxes. Accordingly,
“The Colorado Department of Revenue has no jurisdiction over sales and use taxes imposed by home-rule cities when the state does not administer its local taxes. Taxes collected for such areas must be remitted directly to the home-rule jurisdiction. Therefore, for any local sales and use taxes administered by a home-rule city a retailer or vendor within that jurisdiction must file a return with that city.”
However, Colorado state sales and use tax is administered by the state:
“Colorado state sales tax is collected and remitted to the state by the retailers or venders on a Colorado state retail sales tax return (Form DR 0100) for their businesses.”
Retailers and venders take note: the state sales and use tax “is not collected and remitted to the home-rule city.”
And special district taxes? Who or what administers them? It depends on if the special district tax is levied by the state or the locality. If levied by the state, the state administers the tax. If levied by a home-rule locality, the locality administers the tax.
In fact, this arrangement has been known to cause confusion—as a recently released general interest letter (GIL) pertaining to affiliate nexus illustrates. A company wishes to know if the Affiliate Nexus rule filters down to state-administered localities, and if so, what constitutes a business presence in a local jurisdiction? What about home-rule jurisdictions?
The company in question is an industrial distribution company with multiple subsidiaries, “of which at least three have a physical presence in Colorado.”
The GIL states that an out-of-state business must collect sales or use tax for goods sold in Colorado if the retailer is ‘doing business’ in Colorado.” Colorado law defines doing business as selling, leasing, or delivering tangible personal property in Colorado. This includes, but is not limited to:
- Maintaining an office, showroom, warehouse or other place of business in the state; and
- Solicitation, either directly or indirectly, “of business from persons residing in this state….”
The GIL explains:
“Colorado presumes that out-of-state retailers who are conducting business in Colorado are doing business in Colorado when a related or affiliated retailer has a physical presence in Colorado. Nexus is established by the out-of-state retailer who is part of a “controlled group of corporations” that has a member with a physical presence in Colorado.”
Who Gets the Tax Revenue?
The Department of Revenue administers sales taxes and many use taxes in state-administered cities, towns, counties, and special districts. “Affiliate nexus rules … also apply to state-administered local jurisdictions.” In other words, when a company has affiliate nexus at the state level and a subsidiary in a state-administered locality, “this will create affiliated nexus” for the company in the state-administered area. State and local taxes must therefore be submitted to the department.
A retailer must have “a business presence” in a local jurisdiction in order to collect sales tax in that local jurisdiction. Exactly what sorts of activities create “a business presence in another local jurisdiction” remains unclear, since “[t]here is no statute or Department publication that describes in detail what activities create a business presence in another local jurisdiction.” Everyone likes a challenge, right?
The GIL underscores that the state Department of Revenue “administers state and state-administers local sales and use taxes.” It does not administer sales and use taxes in home-rule cities and home-rule counties. The GIL, which is not binding, only pertains to state and state-administered local sales and use taxes. Interested parties are advised to “consult with local governments which administer their own sales or use taxes about the applicability of those taxes.”
In short, states with home-rule localities create extra complications for companies that do business in those localities. Extra work. A fully automated sales tax system can simplify sales tax.
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