Colorado seeks to simplify sales tax compliance for remote sellers

With its notoriously complex sales tax system, Colorado is a prime candidate for sales tax simplification. It’s one of few states that allow localities to administer local sales taxes (home rule), and it’s the only state in which the sales tax base in self-administered jurisdictions can differ substantially from the state sales tax base. Thus, it can be extremely challenging for remote sellers to properly collect and remit Colorado sales tax — and many are now required to do so.

A bill recently introduced in the Colorado Senate would simplify sales tax collection for remote sellers in a variety of ways. Specifically, Senate Bill 130 would:

• Ensure remote retailers with limited business in Colorado are not required to collect and remit Colorado sales tax (current law already holds that a sales tax collection obligation kicks in when a remote seller has more than $100,000 in sales in the state or at least 200 transactions in the state in the current or previous calendar year)
• Simplify sales tax collection for remote sellers by requiring the Colorado Department of Revenue (DOR) to:
  • Administer all state and local sales taxes and establish a single form for returns
  • Allow remote retailers to collect the state sales tax base instead of varying local sales tax bases
  • Establish a central audit bureau for auditing remote retailers
  • Establish destination sourcing for all remote sales, so tax is based on where goods are delivered, but specify that destination sourcing isn’t required for sales made by Colorado retailers
  • Provide remote retailers with information about the taxability of goods and services in the state
  • Provide remote retailers with a database of sales tax rates and local taxing jurisdiction boundaries
• Encourage the use of certified service providers (CSPs) for the collection and remittance of sales tax and the filing of returns:
  • Free software that calculates the sales tax due on each transaction, files sales tax returns, and updates to reflect state and local sales tax rate changes would be made available
  • The DOR would be able to contract with one or more CSPs
  • The DOR would establish certification procedures for persons to be approved as CSPs
  • Retailers would be able to elect to collect and remit sales tax on their own or to use a CSP
  • All or a portion of the vendor fee would be retained by the CSP as payment for its services
  • Retailers using a CSP would be relieved from liability for errors
• Allow self-administered jurisdictions to opt to allow the state to administer and distribute its local sales tax on sales made by remote retailers

Colorado has been exploring sales tax simplification for years. In 2017, it created a Sales and Use Tax Simplification Task Force to “study options of further simplifying our tax system.” Since then, the Supreme Court of the United States overruled the physical presence rule (South Dakota v. Wayfair, Inc., June 21, 2018), making it easier for states to tax remote sales. Colorado adopted and started enforcing economic nexus: Remote businesses with $100,000 in sales or more than 200 transactions in the state are required to collect and remit sales tax. And the DOR has implemented sales tax sourcing changes for in-state sellers.

SB 130 is the most expansive sales tax simplification bill introduced thus far in 2019, but it isn’t the only 2019 bill seeking sales tax simplification.

SB 131 specifically addresses the sourcing rules changes adopted last year. It would have the new destination-sourcing rule not apply to Colorado retailers that have generated less than $100,000 in gross revenue from the sale of tangible personal property or services outside of their home taxing jurisdictions. Such retailers would instead source the sale to their location (origin sourcing), even when the sale is delivered into a different taxing jurisdiction.

SB 006 would require the Colorado DOR to develop an electronic sales and use tax simplification system to facilitate the collection and administration of state and local sales tax. It’s the intent of the legislature “that all local taxing jurisdictions with home rule charters voluntarily use the system within a specified number of years.” The system would be funded “from the additional sales tax revenues that the state is receiving as a result of the United States Supreme Court’s decision in South Dakota v. Wayfair, Inc., et al., which allowed states to require retailers without physical presence in the state to collect sales tax on purchases made by in-state customers so long as the sales tax system in the state is not too burdensome for the out-of-state retailer.”

Colorado is one of approximately 35 states to adopt new remote sales tax rules in the wake of the Wayfair decision. Learn more.