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Colorado Passes Simplified Sales Tax for Marketplace Fairness Act

  • Jun 3, 2013 | Will Frei

 Colorado Capitol Building

The Marketplace Fairness Act of 2013 [MFA] hasn't yet come up for a vote in the House, but some states are already planning for its passage, and Colorado is the latest state to join the list.

MFA could mean billions for states

MFA would give states the right to oblige out-of-state businesses to collect state sales tax, even if the businesses don't have an in-state physical presence. That means, for instance, that many states may soon get to collect sales tax from online sales made to their residents by remote sellers. The National Conference of State Legislatures estimates that states lost $23 billion in total uncollected sales taxes last year from online purchases (WSJ.com). Struggling states are hungry for access to the additional revenue.

Not so fast! 

There is, however, a catch. MFA specifies that in order for states to exercise the new authority, they must meet minimum simplification requirements to their tax codes. Twenty-two states automatically meet the requirements by virtue of their membership in Streamlined Sales Tax [learn more via this interactive map]. The rest of the states must pass laws simplifying their tax codes in order to enact MFA. Colorado has done just that by passing H1295.

Colorado's work-around

Colorado's tax code is particularly Gordian, because, as a home rule state, its local taxing jurisdictions have greater freedom over their own tax rules and rates. One of the MFA simplification requirements is that states must have centralized tax administration for remote sellers, so that these sellers don't have to deal with, say, both local and state administrators. This is exactly what retailers currently have to do to meet all sales tax laws in Colorado. Furthermore, Colorado would have to change its state constitution to revoke its home rule.

So how did the Centennial State manage to meet the simplification requirements without changing its constitution? By making the requirements optional for local Colorado jurisdictions. In other words, if a Colorado locality wants to have the ability to collect sales tax from remote sellers under MFA, they can opt in to Colorado's simplified system.  Under MFA, then, remote sellers will only have to collect local Colorado sales tax in those localities that have opted in to the new law.

H1295 includes other provisions that help Colorado meet MFA requirements.

It remains to be seen whether MFA will become law, but if it does, Colorado stands ready to collect.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Will Frei
Avalara Author Will Frei
Will Frei covers sales tax news including best practices, legislation and sales tax technology. He is the Social Media Manager at Avalara.