Lawmakers gathered at the offices of the Colorado Auto Dealers Association to deliver a legislative briefing on where we are and what’s coming in 2020 in sales and use tax system reform. State Representatives Tracy Kraft-Tharp and Kevin Van Winkle shared their thoughts as DBJ Reporter Ed Sealover moderated.
The lawmakers summarized the two bills passed last year, and being implemented:
SB19-006, authorized a request for information for a single use portal. The law tasked the state Department of Revenue (DOR) and the Office of Information Technology with creating a Sales & Use Tax Electronic Simplification System–including a Geographic Information System (GIS) database and software system to make the tax remittance process easier for businesses.
HS19-1240, established economic nexus for retailers without physical presence in the state, codified the destination sourcing rule with a specified exception, required marketplace facilitators to collect and remit sales tax for sales made by marketplace sellers on the marketplace facilitator’s marketplace, and repealed obsolete statutory references to remote sellers.
Kraft-Tharp discussed several areas where businesses are bogged down, including complying with new destination sourcing requirements issued by the DOR. Destination sourcing is an example of where the GIS system will streamline administration and be beneficial. Kraft-Tharp indicated that the DOR is changing the project focus and accelerating system implementation.
HS19-1240 mandated that big out-of-state companies pay the same way small brick and mortar businesses do in the state of Colorado. As of October 1, 2019, marketplace facilitators were required to collect and remit for the thousands of small businesses they represent.
Lawmakers discussed a notable anomaly, Amazon, which is complying with state collection requirements but not collecting for local home rule communities. Amazon is reportedly relying on HB19- 1240 as the legal basis to not collect local home rule taxes. And, because local home rules dictate local rules and rates, this Amazon anomaly is an issue for local home rule enforcement.
Advocating for reform
Efforts to reform Colorado’s outdated system are being promoted at the state level by two key groups, the Legislative Sales & Use Tax Simplification Task Force (task force) and the Simplify Colorado Sales Tax Coalition (coalition). Both have been advancing reform legislation for the last three years, with some notable successes in the creation of a portal to facilitate centralized licensing and collection.
Exactly what’s been happening at the task force will soon be seen by every business in the state of Colorado. Task force efforts to get a state remittance portal for online businesses to easily collect and remit the exact amount of tax to the state is expected to go live as early as June 2020.
With a sunset date looming on the task force, members are looking for a five year extension to keep the reform momentum going strong. 21 items have been identified for additional study over the next five years, including the one-stop GIS system and the promulgation of a hold harmless provision for vendors who ultimately rely on the GIS system the state is implementing.
These efforts are supported by the coalition, composed of businesses, trade organizations and other interested taxpayers. The coalition has had its own agenda to promote efforts to simplify Colorado’s excessively complex sales and use tax system, and seen notable successes in eliminating the pay to play rules, simplifying tax definitions, forming the task force, and ongoing work on the electronic simplification system.
Why reform is necessary
The current sales and use tax system in Colorado creates a significant burden on businesses–think 72 home rule filings combined with the state’s filing system–and a drain on economic competition. Steady movement to reform this system is expected to culminate in real change that relieves businesses, consumers and taxing authorities of administrative burdens and cost, and potentially increase sales tax compliance across the state. Similar efforts to consolidate filings in other states have resulted in significantly increased revenues at the local levels (e.g., Arizona).
Since their inception, Judy Vorndran has been a member of the legislative task force and a board member of the coalition. So much more is still to be done to simplify the complicated web of state and local taxing issues in Colorado. Join the Simplify Colorado Sales Tax coalition. Learn more.
Let’s talk tax
Judy Vorndran can be reached at email@example.com.