Volunteering now to register for Colorado’s sales and use tax system (SUTS) will not give companies doing business in the state before the license date a free pass.
By Judy Vorndran and Meredith Smith
Taxpayer registration issues with the Colorado Sales and Use Tax System (SUTS) are coming to light since SUTS was launched over one year ago. Businesses use SUTS to remit their tax payments to Colorado home rule jurisdictions, in addition to the state. Right now, over two-thirds of Colorado’s 70 home rule cities, counties and special districts are signed up to participate in the voluntary system.
Participation is also voluntary for businesses, which have been quick to sign up to make their sales and use tax compliance process easier. Taxpayers who were doing business in the state prior to the SUTS registration date, deemed late filers, are at risk with little to no way to remediate exposure.
Colorado is home to 70 self-collecting home rule jurisdictions, who set their own rates and collect tax revenue. Rather than sign up for each separate home rule with individual online logins, businesses through SUTS can upload information in one schedule and remit tax for all participating jurisdictions at once.
In turn, the SUTS directly disperses the allotted money to Aspen, Boulder, Fort Collins and other cities and towns throughout Colorado in a timely manner. This removes redundant and inefficient processes and is a giant step forward in correcting a messy tax policy in Colorado.
What’s more, participants have their filings date stamped and tracked so nothing is lost. It is precisely that date stamp that is causing many taxpayers’ pain.
Dating Compliance
What if a company has been selling into cities, such as Denver, without being registered to collect and remit sales tax to Denver? If those sales created nexus, the business had a sales tax obligation that it failed to meet. Herein lies the risk.
It is important to understand the footprint of sales in home rule jurisdictions prior to registering for SUTS. Once a business registers, the license carries a date certain—which dates when a taxpayer begins to do business in the jurisdiction–and is signed under penalty of perjury.
If the taxpayer started to do business in the state/city prior to registering, the transactions pre-dating the date certain are subject to lookback penalties, fees and taxes, which cannot always be remediated.
On Patrol
We know tax authorities are patrolling cities in Colorado—Lakewood, Denver, Aurora—identifying companies doing business in those municipalities by the logos on the side of a panel truck or door-to-door canvassing in office buildings to see which taxpayers are where, and whether they are licensed to do business in their city.
Another common tactic is to audit a business’s customers identified from names on invoices. A client recently registered three-years late in the city of Denver and did not realize it. A Denver auditor reviewed the taxpayer’s invoices dating back over the last three years, which clearly demonstrated sales to customers within the city of Denver where it was located, prior to the date on the business’ city sales tax registration.
The invoices demonstrated that the client should have had a sales tax license in Denver three years ago, and absent a timely registration, the business had no protection or recourse, resulting in a more than $50,000 in late taxes, penalties and interest.
Nexus Review before Registering
So, take a step back before you register to:
- Understand what the business did in cities throughout the state before activating licenses through Colorado’s SUTS system
- Make sure prior tax obligations are remediated to eliminate exposure for tax obligations incurred before the licensing date .
Understand your facts and issues, your business footprint, how you get customers, and manage these activities for their impact on state and local tax. Work with our TaxOps team to manage risk and cost honestly and right so you can stay focused on business.
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Analyze current position
Let us help you onboard SUTS before you join the portal by determining any existing liability—and whether remediation is necessary to minimize your costs and risk. Steps to proceed:
- Understand if you already had nexus prior to activating a home rule city in the SUTS portal.
- Determine liability in home rule cities with prior nexus. Decide if remediation is warranted to minimize lookback before joining the portal to reduce late compliance costs.
- Determine how you will collect the tax.
- Activate new accounts in the portal systematically to avoid late charges (i.e., activate in cities without arrearage issues).
- Remediate in high-risk cities.
Reach out to Judy at jvorndran@taxops.com, Meredith at msmith@taxops.com or a member of the SALTovation team at TaxOps if you have questions about state and local tax issues.
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