The Colorado Department of Revenue is updating its sales tax sourcing rule, just not this month as expected (see?Colorado focuses on eSales tax collections: What it means to businesses).?Instead,?the Department of Revenue says it will internally be expecting full compliance by March 31, 2019, to comply with the rule changes. This doesn?t mean you can wait until March 31, 2019, it just means that audits will likely not kick inuntil after the grace period ends and enforcement begins.?
Why the change
The Colorado DOR Taxation Division had planned to finalize the emergency rules requiring all sellers into the state to collect sales tax on October 30. Once effective, retailers will be required to collect sales tax at the rate imposed by the jurisdictions where delivery occurs.
The Colorado rules represent a hefty new compliance obligation on Colorado retailers who ship items to over 900 taxing jurisdictions in the state and will require many retailers to drastically rethink their compliance procedures.
Among the changes, Colorado retailers must:
- Add and adjust rates to the appropriate local and special district sales tax charged to customers on shipped items at the time of purchase
- Add a “non-physical” location to its Revenue Online account for every jurisdiction in which a retailer ships taxable items in Colorado
- File a sales tax return for each jurisdiction in which sales occur
The DOR hearing to finalize these emergency rules, however, was cancelled and has been rescheduled for Nov. 30that 2 pm at 1313 Sherman, Denver, CO. Written comments are still being accepted through November 30, 2018 (5:00 pm), to dor_taxrules@state.co.us.
The takeaway
The Colorado DOR and businesses are having difficulty implementing the agency’s emergency ruling requiring eSales tax collections beginning December 1 of this year. A number of issues were raised at a recent Colorado Association of Commerce & Industry (CACI) meeting that capture the difficulties of complying with the speed at which the State has moved to require a redistribution of sourcing of the sale to destination/ship to. Several practical issues as voiced the recent meeting include:
- Not allowing companies adequate time to adjust their systems. Companies are required to register prior to receiving the branch codes needed to comply. But there is a time lag involved, which makes meeting the Dec. 1, 2018, collection deadline problematic.
- Opponents question whether the State has statutory authority to assert nexus standards that include sourcing to statutory cities and counties where the state has not historically allowed collection without a physical location via an office, warehouse, retail location or leased asset.
- The emergency rule was to allow the State to enact a Wayfair rule and allow collection everywhere the state collects, which is over 900 jurisdictions (see DR 800). But that is not how the state has collected in the past.
- These sourcing requirements extend beyond what is outlined by the U.S. Supreme Court. Colorado?s systems are too complicated to even meet the qualifications of Wayfair, let alone these emergency sourcing requirements.
- There are no specific Voluntary Disclosure Agreements for this program; the VDA process remains unchanged. Contact your TaxOps advisor for a case-by-case review dealing with sourcing.
The State’s own system should be up and running on November 1. System changes on November 1 are for manual and pre-registration processes where a taxpayer can access their own set up within the CO DOR?s system to add branches. We are being told that taxpayers do not need to interact with the DOR to add location codes. However, this means over 900 new rates and rules are required across the state of Colorado; for those with manual rate databases, this is a heavy lift. For those with sales tax automation systems in place, it may not be as difficult, but certainly will require additional nexus decisions and manual set up within the State?s online reporting system.
We’ll have more to report after the hearing on the above regulations, rescheduled for November 30, 2018. We can help answer your questions, evaluate the impact of these changes on your business, and update your procedures for compliance. Contact your TaxOps advisor.
Learn more
Simplify CO Sales & Use Tax Coalition
Will Colorado be ready for its own emergency ruling (by Judy Vorndran, TaxOps) – October 1, 2018
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Meredith Smith, SALT manager, may be reached at msmith@taxops.com or 720.227.0064. Follow TaxOps on LinkedIn.
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