The obligation to collect and remit sales tax in Colorado will extend to the marketplace entity that facilitates the sale on behalf of the remote seller beginning October 1, 2019.
Retailers selling into Colorado are typically required to collect and remit state and local sales tax. Starting October 1, 2019, these same duties extend to marketplace sellers, who have to wade into five layers of taxation at the state, city, county, special district and home-rule city levels.
For all but the home-rule cities, marketplace sellers can refer to the Colorado Department of Revenue Marketplace guidelines. This 8-pager clarifies the state and local tax (SALT) treatment for marketplace facilitators and marketplace sellers separately, providing guidance to both in a variety of areas including sourcing requirements, definitions, exceptions, licensing, collecting, filing and recordkeeping requirements, audits and penalties.
Marketplace facilitators
Businesses selling through a marketplace facilitator such as Amazon and other online entities are exempt from collecting and remitting sales tax on marketplace sales only. The obligation falls to the marketplace entity that facilitates the sale on behalf of the remote seller beginning October 1, 2019.
Marketplace facilitators like Amazon and Etsy must determine taxes owed by companies that sell through them, collect and then remit them to the various districts. Per Colorado’s Wayfair law, out-of-state retailers must collect and remit sales taxes if they make $100,000 of sales into Colorado in a given year.
Once effective, marketplace facilitators will be required to collect and remit sales tax for the sale of the marketplace seller’s tangible personal property, commodities, or services through the marketplace facilitator’s marketplace. Marketplace facilitators can collect a vendor fee on sales through its marketplace. Marketplace facilitators that demonstrate “reasonable effort” to obtain accurate tax collection information from the marketplace seller will benefit from audit relief.
Sellers using ONLY a marketplace facilitator do not have the liabilities, obligations, and rights of a retailer if the marketplace facilitator is required to collect and remit sales tax on its behalf, including licensing, collection, and remittance requirements.
A “marketplace facilitator” includes:
Physical or electronic forum where tangible personal property, commodities, or services are offered for sale
Contracts with a marketplace seller to facilitate for consideration, regardless of vendor fees, the sale of the marketplace seller’s tangible personal property, commodities, or services through the marketplace
Engages directly or indirectly, through one or more affiliated persons, in transmitting or otherwise communicating the offer or acceptance between a purchaser and the marketplace seller
Collects payment from the purchaser and transmits that payment to the seller, either directly or indirectly, through agreements or arrangements with third parties
A marketplace facilitator may be relieved of liability if it can demonstrate that failure to collect tax on sales by a marketplace seller was due to incorrect information provided by the marketplace seller.
Simplify advocacy efforts continue
As a founding board member of the coalition to Simplify Colorado Sales Tax Board, I’ve been advocating to accelerate the creation of a centralized and online sales tax reporting system as a stepping stone to reforming Colorado’s excessively complex sales and use tax system. The mission of the coalition is to reform Colorado’s complex SALT system and replace it with one that is fair, simple and predictable for businesses.
Be part of real change that relieves businesses, consumers and tax authorities of administrative burden and cost, and potentially increases sales tax compliance across the state. Join me in the Coalition to Simplify Colorado Sales Tax today. Learn more.
Let’s talk tax
Judy Vorndran can be reached at jvorndran@taxops.com.
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