Two pieces of legislation were signed into law in the state of Colorado. Senate Bill 22-032 is aimed at simplifying the state’s complex sales and use tax policy, while House Bill 22-1118 provides a process for sales and use tax refunds (that comes with some hidden challenges).
Simplifying Local Sales and Use Tax Administration
Colorado Senate Bill 22-032, as signed into law, eliminates double dip registration fees from local jurisdictions on businesses that hold a standard license. As such, the law prevents local jurisdictions, of which there are 70, in Colorado from charging business license fees on remote businesses that do not have a physical presence in that jurisdiction. The law further requires that the Department of Revenue collect and distribute retailer information to local jurisdictions, which will use the information to issue local general business licenses to those retailers at no charge.
This law provides a two-year phase-in period, as follows.
On and after July 1, 2022, home rule municipalities are prohibited from charging a fee for a local general business license to a retailer that holds a state standard retail license, makes retail sales within the local taxing jurisdiction, and either does not have physical presence within the local taxing jurisdiction or has only incidental physical presence within the local taxing jurisdiction.
On and after July 1, 2023, a local taxing jurisdiction is prohibited from requiring such a retailer to apply separately to the local taxing jurisdiction for a general business license. A local taxing jurisdiction must automatically issue a general business license to such a retailer unless the local taxing jurisdiction has previously revoked a general business license held by the retailer for a violation of its local code.
Takeaway
Double-dip licensing fees in home rule states have been a problem for years in Colorado, and a particular burden on small businesses. This law eliminates layers of auto-renewable licensing fees on businesses (See Where Colorado Sales Tax and Business Licenses Meet). Colorado cities cannot require remote sellers to pay a fee for a business license in order to be able to report and pay taxes to those local cities. You still get the license, you just don’t pay the fee.
Both the state legislature and the Simplify Colorado Sales Tax Coalition, of which I am a founding member, worked hard to resolve this issue in a reasonable manner. The General Assembly’s override of licensing at the home rule city level favors statewide uniformity and fairness and is a taxpayer win.
Colorado Amends Sales & Use Tax Refund
In a second piece of enacted legislation, Colorado House Bill 22-1118, interest on sales and use tax refund claims filed by a purchaser between July 1, 2022, and July 1, 2026, will begin accruing interest on the date the claim was filed rather than the purchase date if the refund is paid more than 180 days from the date the claim was filed.
When these claims are filed incorrectly or frivolously, the law allows the Department of Revenue to assess and collect civil penalties equal to 5% of the total refund claimed, if the claim is materially incomplete, and 10% of the total refund claimed if the claim is duplicative or lacking a reasonable basis in law or fact.
Takeaway
Many companies file simplified refund claims to get the process started but it now comes with risk. Governments are curtailing refund claims that are incorrect or frivolous. If you are going to file a refund claim, all items need to be reviewed and the value of the claim properly assessed to avoid a ruling by the state that the claim is incorrect or frivolous.
And remember, the state of Colorado doesn’t want to be your bank account. They are limiting interest on the lookback period.
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