The what, why, and how of Colorado’s SUTS with Ed Sealover and Laurel Witt
Hosts & Guests
Ed Sealover, Denver Business Journal
Laurel Witt, Colorado Municipal League
The what, why, and how of Colorado’s SUTS with Ed Sealover and Laurel Witt
Meredith Smith [00:00:02] Welcome to SALTovation, this alteration show is a podcast series featuring the leading voices, Insult, where we talk about the issues and strategies to help you make sense of state and local tax for everyone. And welcome to another episode of the SALTovation podcast. Colorado sales tax collection is one of the most complicated systems to navigate in the country with statutory and home rule jurisdictions. Colorado has migrated to a destination based system as a result of Wayfair from my location in common, meaning the home rule jurisdictions unless physically present. Now the home rule cities are able to get in on the action and impose their sales tax on businesses who have not had physical presence. Historically, the Colorado system is enough to push sales tax collectors over the edge, with its reputation for being one of the worst systems is now intent on simplifying it with a centralized sales and use tax system called sets. As such gains momentum. Some issues are coming to light for participating businesses and jurisdictions. But as we get into that conversation, let's back up first and give a little history here to help us walk through that. Through what? Why and how is Ed Silver, senior reporter for the Desert Bendis Business Journal, and has been following the issue on behalf of his business audience since the waiver was implemented in twenty eighteen. Ed, thank you for being here.
Ed Sealover [00:01:22] Thank you for having me on today.
Meredith Smith [00:01:23] Also joining us today is Laurel Witt, associate counsel with the Colorado Municipal League. Laurel will share with us how Seamount participated in this simplification.
Laurel Witt [00:01:32] Thanks for having me.
Meredith Smith [00:01:33] Laurel, thank you for joining us today. And before we really get into questions, we do want to congratulate Ed as being recognized by the Society of Professional Journalists as PJ's Co. two thousand twenty one journalists of the year. And congratulations on behalf of Salivation.
Ed Sealover [00:01:49] Thank you. Thank you very much. It's a great honor.
Meredith Smith [00:01:53] All right. So we're just going to dove right in. Ed, you've been with the deejay for over 12 years and have been following the Colorado sales and use tax issues. On behalf of your readers, can you take us through how you became aware of the issues we're talking about and what you are following now on behalf of the businesses?
Ed Sealover [00:02:12] Yeah, absolutely. Thank you for asking me and thanks again for having me on here today. Meredith, I can't tell you the exact year, but I think it was around twenty thirteen when the legislature really started talking about going after sales from out-of-state vendors and having them taxed here. And that Colorado that conversation had fits and starts. There was a law passed that allowed them to go after some. But you had a physical nexus here and it was Wayfair, of course, that changed everything in twenty seventeen. And suddenly the state realized that not only did it have the ability to go after out-of-state vendors without a physical presence here, but that they really needed to conform their own law for in-state vendors in order to have everybody on the same playing field here. And so watching the several years that it took to walk through, how do we create first a law that's going to require everyone to go to destination based sourcing? And B, how do we not make that incredibly burdensome on people and create a system for which it could work through has been interesting. And it seemed to have gone from there's no way we could do this to, hey, look, we did it to hey, look, this is going pretty well to in recent months some more complaints about, hey, maybe this is not going so well. That's a lot of haze. But they're making hay here. And it's a way to to really say, yeah, I think this is an issue that is going to continue to vex. But the state, the local governments and businesses for a while to come. And since it's so important to local businesses, just feel the need to keep up on it.
Meredith Smith [00:03:43] Well, and I think just in some of the conversations that we had, do businesses often reach out to the Denver Business Journal just as like an outlet to say, hey, here are just some of our concerns from just, you know, whether it's a sales tax or just the business environment in general. Do you think the debate often becomes kind of like a sounding board for in-state businesses?
Ed Sealover [00:04:05] It is not uncommon. You know, the number of businesses that have reached out to me to speak about the sales tax system is pretty minimal. But I find that whenever something happens right after Wayfair or right after the state announced, we're ready to go live on July 1st with destination based sourcing this year. So, yes, on that and on other issues, I do hear from businesses and it's a good way to remember how important some of these things are to local businesses and that what may seem a minor concern could be spread among a lot of businesses if somebody is taking the time to call me and talk about it.
Meredith Smith [00:04:46] Yeah, well, and I will say I am sorry. Judy is also with us today, our proud SALvation leader. So, Judy, I apologize. I met with you from the Enshroud
Judy Vorndran [00:04:56] by
Meredith Smith [00:04:58] Judy will also be here today with. Well, and I think it to it's good that, you know, because often times when the legislator kind of does something we think about, like our big in-state businesses and oftentimes we forget about like some of the smaller businesses and just, you know, just remembering that we have business owners and people who are participating in the Colorado economy on all sizes and scale is right, Judy. We often reference kind of the first trigger when Colorado went to the destination race reporting kind of a public hearing. And there were business owners from all over the state that drove to Denver to be like, hey, I want my voice to be heard. This is going to be really hard for me. Somewhere in tears. It was just very like it was a nice reminder of just who you know, who our business community is in Colorado.
Judy Vorndran [00:05:51] They really didn't understand it at the open hearings, if you recall. I don't know if you were there on a laurel, if you were there, but I mean, there were hundreds of people in these rooms listening to the Department of Revenue. And there they were giving a voice to it and having a microphone. I mean, I was just astounded at the stress in the room. It was palpable because people don't know how they're going to impose their rights. I mean, think about a small vendor that might ship to you in Aspen, Daryn Thorton. They have a nice little shop, but they're going to go ahead and send you something out of the city. Will aspens and home rolls. You have to worry about that. But you might not talk about Pitkin County, which is a county tax. So they're just up in arms about how the heck they were going to charge the tax in the first place. They knew how to collect their location based reporting, i.e., I'm in Thornton, I'm in Colorado though and may or may not be in these extra jurisdictions or regional transportation, the cultural scientific district, but they could do that. That's one race. But looking at thousands of oh, my gosh, people were there, heads were blowing off and then no one really understood what that meant and the difference between death, location based reporting and destiny. I mean, nobody got it right. And I don't even think the department revenue did a great job disseminate that information to taxpayers so they didn't really understand how to go about it. And if you don't have automation you can't really do the rates easily, even with our system looking it up. Give me a break. You know, think about that as well as to ship multiple places. You could never collect the tax at the ready without some type of software. And large businesses have automation, but small businesses are just putting it right in a system or putting it on their receipt. So I think there was a lot of stress around that for sure in the beginning with just our destination reporting that happened with Wayfair.
Meredith Smith [00:07:33] Well, and then Laurel, you're with CML, the Colorado Municipal League. And so what is GM's role in general?
Laurel Witt [00:07:40] Yeah, yeah. And again, thanks for having me on as well. So the Colorado Municipal League has existed for about one hundred years and we represent a long time and we represent two hundred and seventy of the two hundred seventy two municipalities in Colorado. And that includes both home rule and statutory self collecting and non stop collecting municipalities. There's about one hundred and three municipalities in Colorado and seventy of them self collect. So quite a large number as we've been talking about, which of course, adds to the confusion, Judy, as you were mentioning earlier, and CML does more than the sales tax. We represent issues ranging from police reform with a lot of the changes that are coming up to two sales taxes to implement anything that cities face and deal with on a daily basis. We represent them both in the state house, the legislature lobbying on bills. We also help with training and education. So we do a wide range of things. And this is one of the areas that we've gotten involved in
Judy Vorndran [00:08:39] because that's how you're funded. Right. But let's just take a step back about the cities. I think there's a really misinformed public in America in general. You live in Los Angeles, you live in New York. You live in Boston, Massachusetts. Everything is available at the state level, right? Things are happening at the city level, like you were saying, fire departments, police. I mean, there's a lot of things that are locally administered. Right. And the county administers our dams, our reservoirs. I mean, therefore, there's an infrastructure in place governmentally to oversee that need. It's not all mandated at the state or managed at the state. So they have to find some extra funding aside from what the state gives them. Correct. Not to mention the fact our federal governments give state money. They don't always want to be beholden to that state money, i.e., I don't want to do what you told me to do with the federal government. So I want my own tax structure. Right, which is why we have state taxes in the beginning and then cities and counties are the same. Right. So sales tax, property taxes are a natural way. They're funded in addition to getting money from whoever else gives them money.
Laurel Witt [00:09:45] Besides us in sales tax for our cities in particular is about 70 percent of our revenue.
Judy Vorndran [00:09:51] So think about that huge, huge amount of money. Yeah, but yeah. And then, OK, so we've been around one hundred years as cities. So let's talk about. Why the heck they're home rule
Laurel Witt [00:10:01] yet, so this is what home rule means. Home rule is derived out of our Colorado Constitution and home rule does exist in other states, but not all other states. And in Colorado, it's one of the strongest. So we have some of the most power in the Colorado Constitution, such as collecting sales tax at the local level. If the city chooses to do that and we refer to it in passing as local control, just this idea that we want to be able to help our cities be able to help their citizens and the best way that they can. So we have quite a wide variety of different cities here in Colorado. Anything from the Aspens and Telluride of the world, which are very common cities all around the US. People know it for ski towns all the way to Denver, Colorado Springs, to these more urban places that people come to work and live. So each of our cities has a different focus. And what they want to do and that allows this local power allows them to do that. So it does include sales tax. Of course, in some cities tax is higher. Some cities will tax groceries because they only have one grocery store in their town, whereas others don't do that because they're big and they have other ways of taxing cities such as sales taxes we've been talking about here on this call. So it's kind of a variety of these different cities and how they approach taxing. And then, of course, there are different ways that cities want to govern their citizens. Different cities want to approach things like oil and gas differently or employment differently than maybe other cities do. So it allows our cities to kind of become these laboratories of democracy. I think they used to call the states that this ability to try out different things and see what works so home just allows them to do that in that way. And home rule has been in the Constitution, but it's been solely defined years to the court system and through the state legislature. So it's been one of those ever evolving ideas and home rules. This means our ability to govern our cities within our little laboratories within our little city. And it isn't unlimited power. Of course, we're still defined by the Constitution and we still are defined by some state statutes. So it's in my case, law, of course, as well. So it's just this idea that we want to be able to have the government closest to the people be able to decide what kind of things govern them. And as you said earlier, sometimes taxing from the federal government looks different than a city. So it allows us to do that a little bit differently.
Judy Vorndran [00:12:20] Of course, you have a national chain like, say, a Culvers or maybe that's a franchise. I'm not even sure if that's a great example, but they might be housed in a different state where their headquarters is. But they put an operation in a McDonald's, a Culvers or any think about all the food that is kind of a national chain that has locations in different cities. And they've got to deal with the complexity. Do they care about home rule? Absolutely not. They just want people to come by their food at that storefront and they're located elsewhere. So they get very confused about the duties in the cities of residency permitting and then the tax structure. So that, I think, adds a layer of complexity for entities that are not per say in the home rule in a way that's the same as when I open a storefront. I have a shop in the city. I get it. That's my city. That's my place. I get my community, I get where I am. And a lot of out-of-state people don't even get that. So it's really a push poll of how we understand that as a business being local and being national. So it is a really big challenge, I think, for taxpayers. And now we've got a situation where we could sell to somebody in another city and we have to collect the tax for that other city previous to home rule in the statutory destination cities because of Wayfair.
Laurel Witt [00:13:38] Right, exactly. And even in state, this has become a problem. There's some bigger organizations that were really on board with that because it would make it easier for them to be able to collect around all the different cities in the state, such American furniture warehouses. They have several home cities and this would allow them the sets program and it would allow them to collect in one place instead of having to file taxes.
Judy Vorndran [00:13:59] I could go to 70 different places. You have to sign and get your license, put your information in. You could spend a day just filing all those returns because they each had to be done separately. Now, if you could put the data in one front, in one location and then kind of just make sure it all ties out, the reporting becomes a little bit easier, like California has state level reporting for two hundred and fifty two or two out. Fifty six jurisdictions at the local level, Texas has one thousand seven hundred fourteen. So it all happens at the state level. So at least the reporting becomes a little bit easier because you're going to one system, one registration form, one remittance form, even though you got another bucket, the buckets are still challenging.
Ed Sealover [00:14:42] And don't forget, it's not even the cities that people have to think about here because of all the interaction of special districts with cities. There's over four hundred taxing districts in the state of Colorado. So to use the example you had earlier, if that Aspen Merchant is sending something to Thornton, they better know which san. The district, they are right. They know the exact level of taxes, their pay,
Judy Vorndran [00:15:04] and that's a real challenge, I think, in and of itself is local the way the web is and the lines are drawn. It's like you have these complicated geographic structures where I'm in Denver, but then I'm in this because that fits around the regional transportation district. All that good stuff makes the city a sale. Very complicated for a vendor.
Laurel Witt [00:15:25] And I will say that self collecting is only for rural jurisdictions. So I think all these should already be on the system. But as you said, you still have to know which districts to lose.
Judy Vorndran [00:15:35] And so and that's really hard when you're the one doing it. You're a small business especially. But honestly, it's hard for large businesses to I mean, there's a lot that happens in a business in order to get a sale to a customer. And you betcha they know how to invoice and you betcha they know how to ship or deliver. Right. But putting the tax on it, not so simple. Right. And certainly not your first and primary function to collect tax for the government. Right. Your business is to make money and make a business. Right. So this extra functionality that that business has to be basically an invoicing system of government, in my opinion, needs to be treated with more gratitude on the government's part because that is their basic collection system. And there's a push there of making it simple, but honoring the home rules and their ability to mandate their own laws and enforce tax.
Meredith Smith [00:16:25] And, Judy, the collection piece and you know, Ed, you had you had mentioned that there were maybe some misunderstandings within the business community that were brought to your attention, that about the actual collection of the tax where you were getting feedback that you wasn't going to collect the tax.
Ed Sealover [00:16:46] Yeah, or it was one of the particular concerns I've heard lately is the inability to interface sorts with your own website. And the idea and this is one particular merchant I had spoken to who said, look, people come to my website, they might want to buy. They push by and they can't do it because I then have to figure out where they live and what tax calculation is right. And then I have to get back to them. And if they've even decided to give me their contact information, I may have lost the sale in that time period there. So there's a lot of concern that while it's wonderful for calculating and remitting taxes, the state is not as useful unless you want to invest a decent amount of money hiring a contractor to interface with your website. It's not as useful for interacting with customers.
Judy Vorndran [00:17:33] No, and not only that, but Sots is one thing. What about the other forty six places in America? Forty five D.C.. Not to say it's a district, but the forty six states, if you want to call D.C. a state that has sales tax. So it's one thing to worry about Colorado. What if you're still in Illinois, what if you're selling to Indiana and you still might have to collect there because of Wayfair? So you're not going to just worry about Colorado alone if you could have customers everywhere. And that the other complexities layered in such a sense is not a one size fits all solution, nor is it really, honestly a solution. If you're a multi state vendor selling outside of the state of Colorado. So you'd really need something larger than even the state's platform to figure out your tax bill.
Meredith Smith [00:18:14] Right. And it's kind of a small business. And there's a jewelry maker in Carbondale that I really love. And she shut down her website and I was like, huh? I wonder if that's because now she might have to start complying with all of this stuff and she's going to start selling through Etsy going forward. And it's like, well, Etsy is going to collect that as part of a marketplace. But now she doesn't have to reconfigure her API and her website to do all of this destination based collection, because it is easy. And I use that term loosely. Right. If someone comes into your store and they buy something because it's a point of sale, you know, the rate in which you're located or it's easy enough to say, hey, or if you pick up the phone and say, hey, I want you to ship something to my house in Denver, you know, as looking up an address for Denver. But people who buy things on websites want it to be real time. And so then what that means is you've got to connect your website and your API to a third party collection system, which, again, costs money to do that. So it's like, OK, is the ability to sell and collect tax correctly through my website worth the additional cost? And is it going to, you know, are we going to get there? And so I think that's what it sounds like. And you're hearing from the business community, just like there's just all this extra stuff that I don't know. I'm not. I don't want to break the law, but I also don't want it to be so hard. So what do I do? Or expensive.
Ed Sealover [00:19:42] Yeah. And I think the point Judy made earlier is that the Department of Revenue was very successful in explaining exactly the role of sorts, because I followed this process for years. And when the businessmen who called me about this concern said, hey, the. This is a problem. I said, well, the system was never designed for this. It's the same thing the Department of Revenue will tell you. And he said that was not conveyed to us. Many of us got on there thinking this would be a one stop system, not just for collecting remittance to the state, but figuring out payments that others have to remit to us. And now I think there are questions around, well, how do you deal with that? Do you just say, sorry, this is not our problem, you can go out and hire someone to interface the system if you want to pay more money? There is a Senator, Jeff Bridges, a Democrat from Greenwood Village who heads the Capitol Technology Committee, and he's particularly concerned about this. And one of the ideas he's thinking about is seeing if, of course, businesses that collect under one hundred thousand dollars do hundred thousand dollars in annual revenue right now aren't part of the destination system, except, of course, Laurel, if they are paying to a home or city. But he is thinking about extending that moratorium further out, saying maybe this just isn't the way that small businesses need to deal with it until we can figure out how we can adjust our system to be more than one stop shop. Now, I don't know. And he admits I don't know. He says I don't know if I'm going to be able to do that this year before the July 1st changeover to destination based sourcing for everyone. But that's one of the ideas being thrown around to address this problem.
Judy Vorndran [00:21:19] But even that, once again, it just solves the Colorado problem maybe. And what I find is that most of the clients who talk to are doing business in more than one state. Right. So Colorado is just one little piece of the pie. They've got to deal with the whole pie. So you need to have the capacity to deal with it. And that does require some kind of system of record API interface or something to get your rates there. Over thirteen thousand rates in America. If you combine all the jurisdictions, I mean, there's over thirty thousand water districts in America. Does anybody know how many counties we have in our nation? How many cities? I mean, we have a lot and each one of those has a rate. So it does require some type of automation, which is why you see the software companies going crazy and they're going public and making tons of money because it's everybody's they're trying to sell to everybody. But it is expensive for a small vendor. That's if they're not making one hundred thousand a year, is it worth having a business? Right. So that becomes prohibitive to even starting and being entrepreneurial.
Meredith Smith [00:22:19] Well, and I don't think it's just the business community that has a reluctance towards Lorrell. I think, ah, there is some reluctance within the city. So what do you think? What has SGML heard or done to kind of address some of that reluctance within the jurisdictions and municipalities that you all represent?
Laurel Witt [00:22:41] That's a good question, because there is some reluctance. Even now, not all the cities are on. I think it's 50 out of 70 our onsets right now. And some of it has to do with cities wanting to see how it works. Some cities are kind of sitting back and seeing like, how's it going? How's the integration? It's just like a business issue. There are issues on the back end with integrating with city technology. If a city has the same software assets, which is the same organization called muni rents, if they have the same system, it's easy. But if they don't, it's not. So that's kind of a backend issue as well. I know some cities are having to hand count in hand writing things about to make sure that the right tax payers line up with the right number and all that stuff. So there's some complication on the back end. Originally, when it first started, I think there was just this trend of our cities going to jump on the trend of economic nexus: are we going to do the single point of urban portal? So we had to talk through that a lot with the Department of Revenue. As you guys know, under Wayfair, one of the factors was having a single point of permanence portal. And we didn't want to cause businesses more issues with having to commit to all these different cities. And of course, that would result in a lawsuit. And also it's way too complicated to tap into all these different cities. So we were trying to figure out how the Singapore government worked, what it looked like to work with the Department of Revenue. Some cities have never worked with the Department of Revenue like Denver has always been the self collecting idea or has been for a really long time. So going back and working with the state is a little bit different. Denver has more of an interest in the state of Colorado. So they're just a bigger operation than the state of Colorado. So just trying to work with them and figure that out was a challenge. But it's been really interesting to see how it's all played out. I think, as I said earlier, there's been some hiccups and some especially for the business side. There were some from our side as well. So we're just trying to figure that out as we go along. The hesitation, I think, is getting better.
Judy Vorndran [00:24:34] Well, I was just saying there's two to three parties, us and Munira, so they're not even the state. So I think that actually helped me get over the hurdle. First of all, they're made for business. They're built for business. So they're built to make it as easy as they possibly could make it.
Laurel Witt [00:24:50] And they're beautiful. It looked really great.
Judy Vorndran [00:24:53] And it helps businesses be successful because there's a tremendous amount of risk in mis collecting. So that's why. Using those products was sort of a way for the state, for the cities to build trust because they weren't trusted like you need here, just trust with the state for some reason. And I really feel like it kind of goes way back in time to before. Technology was very good at a lot of things that just are just not that good. Right. That has really gotten tremendously better. I mean, good. I think about my career, the Internet. I mean, that's just like it was even in its infancy when I first started working. Right. So that's just part of our life. Our phone is our little computer. I mean, so much more information is readily available and technology is better for them to get their money, because I think that was a big issue as they weren't getting their money. That's what it's all about. So they self collected. Right.
Laurel Witt [00:25:40] And the politics behind it. So the state would be like, well, we're not going to tax groceries for home consumption. And this little tiny city is like that's the only one that acts. So I think there was a little bit of distrust there, too, with the political side of things.
Judy Vorndran [00:25:53] It's wonderful to see some changes in that, too, to destination reporting where you get more humans in a location, you're going to get more tax because now they're ordering off Amazon or whatever. So therefore, the tax is really coming from your home than from your grocery store Persay. I do think one of those that you just mentioned, the food for home consumption or the food or whatever, is a huge issue. I mean, we have eighty one exemptions at the state level and we do not have the same exemptions at the city level. I mean, for a great example, software states don't tax delivery software. A lot of the cities do. In fact, I think all the cities do just about. So that is a big shift of mentality, like how do I collect tax on software in Denver if I don't have to collect it in the state? That is it. That requires a workaround, even your software platform, because it's not a destination, right? Like just charge this one. Right. No charges, personal rate. Remember what you charge and then throw that money to the city of Denver, not to the state of Colorado. That's a complexity that a lot of business has. It's just not as simple as a full rate on an invoice. So there's the rules and the rates that really make it almost impossible to really collect properly without some technology behind your invoicing process.
Laurel Witt [00:27:06] So I think that's what we were hoping for, is that states would help us get there. Yeah.
Judy Vorndran [00:27:11] And as we've been talking, they see the money and they see that. Well, then I'm I was always hoping, like, the more information we had in terms of the disparities and the commonalities, maybe we'd see some unraveling of that. So, for example, if you're seeing a city that's very dependent on their grocery store collecting tax, that's their primary vendor and that's where the real money is coming from. And they saw that their community was giving them tax because they're buying things and now they're getting taxed on other home deliveries that you see the money shift, right? You see more money. Maybe we cannot tax as many things because that is the biggest challenge we have is a difference in taxes between the state and the cities, not to mention the rates, but just the difference in taxing, which I think is very hard on business.
Laurel Witt [00:27:53] Absolutely. And it's confusing. And we define things differently, which is what we were trying to solve a few years ago, standard definitions and we got it.
Judy Vorndran [00:28:01] But even the state doesn't conform to that. The state doesn't conform to the standard definitions. The cities are getting on board, but the state gets and figures that out. I don't know if you have any thoughts on that, because that's an interesting one in itself, that the state won't even step on. They won't even think about it.
Ed Sealover [00:28:17] Well, I mean, there's a lot of business folks who say, well, I just wish we had standard taxation of what's getting taxed in the city. And I know I deal with the executive director a lot and his head explodes when I mention that the idea of stepping on home rule authority of cities really is almost no way the standard definitions and law. I don't know if you know what the numbers are in that. I know at one point there were about fifty percent of cities that were signed on to the standard definition.
Laurel Witt [00:28:46] There's more now, 50 percent. Yeah, there's a link on our website.
Ed Sealover [00:28:51] That's the way of getting at it. But there's no possible way you could really say, OK, this tax is applicable across the state, it just varies so much from city to city. I think that's an issue that unless the state wants to go to the mat and withdraw home rule authority, which it doesn't, then I don't think you can get around that. Now, I find one of the more interesting concerns now, and this again, is coming out of the Capital Technology Committee, is the idea that some cities and I understand it's not a large number, some cities are now requiring that out of city vendors who submit tax revenue to them, which is mandatory July 1st, are requiring a business license. Actually, I understand a lot of cities are requiring this, but the truth is most cities aren't charging for the business license. Some cities are actually asking, going back to our example, that asking businessmen to buy a business license in their city, the same as as
Meredith Smith [00:29:48] someone who has a storefront in that city and is using the roads and the sidewalks and all of that is just someone who's sending a good to a constituent of that jurisdiction.
Ed Sealover [00:29:57] Exactly. And I know how to talk. You can see HTML and to the fellow in Arvada whose name I apologize, I can't remember who headed the committee looking into this. The recommendation was, look, don't charge for four licenses outside the city unless you feel like you have to. But I think this is still an issue that is going to be debated going forward. And I know one that, again, Senator Bridges said he wants to look into that. There isn't a definitive way to solve this quite yet because of home or property. So I don't know if that got us anywhere to explain or solve problems. But I think it just talks to the complexity of what happens when the state tries to simplify the system. And I think it's come a long way since twenty, seventeen. I don't think it's ever going to get all the way to where people want to take it.
Meredith Smith [00:30:47] No, I don't want to give you an opportunity, because I know SGML, like we've talked GML has is trying. Right, like they are kind of and I don't want to speak for him because I don't work for them. All right. But if you want to speak to kind of what Ed said regarding the licensing fees and whatnot.
Laurel Witt [00:31:05] Sure. Yeah. So what Ed had mentioned earlier, so Vasquez is his name from the city of. So we have a committee. It's a long name is the Small Sales Tax Simplification Committee. It was started in the 90s, early 90s, when the first round of standard definitions came out. And I will say that the state was supposed to get on board with our standard definitions and we did not. But anyway,
Judy Vorndran [00:31:29] now it's an interesting issue.
Laurel Witt [00:31:30] And it is it is so back to business licenses at the very beginning of the pandemic and the starting to talk about sex in this kind of all this conversation started to happen right around the same time we sat down and talked about business licenses in our committee is represented by all the rules of collecting jurisdictions, have their finance director or some other finance staff on there. And we talked about this issue. So I think maybe some folks weren't present at that meeting or maybe we need to bring it up again. It is an issue that we have flagged and want to talk about again, because business licenses are something that I think are really problematic for different reasons. Like there's no way a business in Massachusetts cares about getting a business license and all the
Judy Vorndran [00:32:11] self-correcting homeworld, 70 times, 20 bucks is like fifteen hundred a year in license fees. I mean, no way. And I guess the interesting thing about this license issue is some are called a business license. Some are called a sales tax license. Some are interchangeable. I get a business license if you have a site in a location, no question I'm here. Business license is something different, but a sales tax license, if you're going to sites, you get to use the state's license. You don't have a separate license fee, but that twenty bucks can really add up. And the problem is, especially as a small vendor, but even as a large vendor, can you imagine how much it would cost you to collect tax and 70 extra cities that they all charge you? Twenty bucks, not to mention adding the destination cities that are statutory that also have business licenses, sales licenses. So we have I was calculating and telling Kevin, your boss, that it could be like eighteen thousand dollars a year. I mean, there are cities, the town of Blue River where I have a home outside of Breckenridge. It's one seventy five year for the privilege of collecting their lodging tax. One hundred and seventy five dollars.
Laurel Witt [00:33:14] And that's another issue. But yeah, I think that these business licenses, most humble jurisdictions are according to them that that wasn't the goal. The ones that are simply a conversation we have to have.
Judy Vorndran [00:33:24] I think it should be site space if you're going to have it like I have a location now. I am giving you tax write. I'll collect it if I'm collecting a sales tax for you and you get it now sets no sales tax license that goes to the state. Sorry, it's fifty bucks the state but no business license unless I have a site with the laws around that are not very clear about how they're allowed to impose it and who's going to spend a lot of time and money fighting a forty dollars fee. And you got a lot of people to hire a lawyer for that.
Laurel Witt [00:33:54] And I think there are two distinct conversations here between a business license without a fee. And that will be part of the reason for having business licenses without a fee is because that doesn't give us all the information or gives us the correct information. There's been some issue on that side and this is something that obviously we are talking about and really want to address with our municipalities.
Judy Vorndran [00:34:13] And we can appreciate that they deserve to have that money for good reasons. But yeah, how it's getting done, I think it's very confusing for taxpayers and it is an unfortunate byproduct of sorts because information is being disseminated through the state filing where the counties and the cities are getting that information like, oh, you have a new registrant and Gunnison County, you're located in Mount Crested Butte. I want a business license. I'm not in Crested Butte. I am actually an out-of-state seller that happened to have to give you destination tax. But the cities know that because they know, they know, they know these new vendors are opening up within the state system. So there's a little bit of disconnect. And then certainly they do what they need to do administratively to say, hey, I see you're here, you need to get a business license. And they're like, but I'm not here. I'm just giving you six bucks because somebody put something for me and it went to your city. So it is a bit of a challenge. I hope we'll get through that. I mean, I think it's sort of a natural byproduct of what happens when you create that and information is starting to get disseminated and then they don't know what to do with it. It's sort of outside the norm.
Laurel Witt [00:35:17] Right. And there's a lot of questions about where the money is coming from, because sometimes we'll just have like you can fill in your own form and sometimes it won't say the name of the business or winning city. It's a little bit confusing. So I think we will work through the fee issue, hopefully. But I think the overall business license issue is an ongoing thing with the sense of just trying to work through some of the hiccups that come with starting a new single point ramen's portal.
Judy Vorndran [00:35:41] I wish there was like a chart on it, though. Like where you knew. Because it's really hard to even figure that out within their ordinances, do they have one? Do they not have one? You have to go to each single website for each city and town and figure out what the heck they expect you to do, because it wouldn't be clear,
Laurel Witt [00:35:56] because it's like a form that you fill out with the tax department.
Judy Vorndran [00:35:59] Usually it's a fee and it's sort of administrative. It's not necessarily even legal, not legal, but it's not enumerated in law. Oh, we charged a six dollar license or whatever. It's allowed to be done as an administrator or as a government. Yeah, yeah. So I think we're going to see some hiccups there, a lot of them. But, you know, as with anything, you're going to have hiccups, right?
Meredith Smith [00:36:21] Well, and on kind of information dissemination, Ed, are you hearing anything else from the business community? You know, we've mentioned just the fact that this isn't a collection system and this licensing fee. Is there any other kind of thing that you're hearing where people wish they knew more about, like they had more information regarding something specifically related to this, like, you know, anything sales tax, this transition?
Ed Sealover [00:36:49] Who I'm hearing from are usually the people who are very involved in this, who are aware of such, who are aware of the switch and origin based investigation based sourcing. What I hear constantly from them is I'm worried about what will happen come July 1st, because most business people don't have the time, especially if you have a small business, to follow this kind of conversation, do follow these kinds of changes. And I think that's going to be the big question. I mean, how do cities, how does the state get this message out to the people who don't know what's going on, who have just been traditionally calculating their taxes based on their business address? How do you emphasize what's happening? How do you react to it? Because I'm willing to bet we're going to see a lot of people who remit taxes wrong for the next year after July 1st. So, I mean, do you as the state go after them hard? Do you just say, hey, thanks, but here's how you have to do it instead? I think that the big concern now is not what businesses know, but what they don't know. And how do you get it out?
Meredith Smith [00:37:51] And especially so we're just coming off of the unprecedented times like this. But it's just like, hey, if I have made it through all of twenty, twenty one and I care for all twenty twenty and I can make it to July 1st, twenty, twenty one like hell. Yeah. Like I'm still around versus just like all right. Now I have to figure out how is business and business to collect tax and Thorton like there are other things that are on top of mind for businesses coming as we kind of not wind up the pandemic but like, you know, ease up on some of our restrictions and whatnot just from like a business community in general, like, hey, I'm still here, thank God. But now I don't want to because you hear the horror stories that make the paper that's like, oh, X, Y, Z business shut down because they got a million dollar sales tax assessment. You know that we don't want our businesses to be victims of a sales tax. Whoopsie.
Ed Sealover [00:38:45] Yes, I agree. And then again, I think that's a wish. None of us had an answer to that. But I think that's going to be figured out as we go along here.
Meredith Smith [00:38:54] Well, kind of on that, Laurel, have you seen some of the hesitation with maybe some of the home rule jurisdictions where kind of the pandemic created like this online buying spree? Right. Where it's kind of like, man, I wish like now I really I'm missing out on some taxes that I could have had if we had the ability to collect taxes from non physically present businesses. Has that kind of incentivized companies to come on board?
Laurel Witt [00:39:25] Yeah, I think so.
Judy Vorndran [00:39:27] And the got the cities and government absolutely
Laurel Witt [00:39:31] at the beginning. So that's, as I said earlier, sets in the pandemic all kind of happened around the same time. It was always yeah. It was like all at the same time in March of last year, which is a little bit chaotic for all of us. Yes. But as cities started seeing money coming in through that way, they started jumping on sets a lot faster. So I said we have about 50 of 70 cities. I think it would have been a lot slower of an onboarding process. Really? Yeah, I think it would have been not for this kind of world changing plus the pandemic and like seeing taxes coming in through my businesses. Yeah, it's just like how everything changed all at the same time. I think that's why we were able to get so many cities, including big cities like Denver, to jump on board with sites like Uber.
Judy Vorndran [00:40:11] You think about Uber and Stuckart, like, yeah, maybe I'd adopt it, maybe I want it. I got covid. We figured out how to sign up for cards because we had to for for
Laurel Witt [00:40:22] you had to do
Judy Vorndran [00:40:22] right now we weren't allowed to go to the grocery store or interact. Don't mind you. Maybe people have brought us food, but good golly. Right. Don't come meet up. Go there. Yeah. So we figured out the insta card thing so we could get things brought to us like and I'm sure a lot of other people were doing that even before we did that.
Laurel Witt [00:40:39] Some of the older folks are people who are more sensitive to some of the things that were going on. And I think one thing that we get asked a lot is like, well, did you want to Amazon? But Amazon already had voluntary remittance with a lot of our cities, including Denver, and they have a warehouse in Aurora.
Judy Vorndran [00:40:54] But as I say, they have a warehouse out there.
Laurel Witt [00:40:56] But a lot of our other cities, they had already voluntarily reported to us. So it was more like these, like I delivered groceries or small businesses. That being said, by the time it was up and running, by the time we got our audiences, it was well into twenty twenty, beginning of twenty, twenty one before they really started collecting and seeing the benefits of it. But I think even now that the pandemic has changed the way a lot of people shop and will continue to shop, it was already happening. I think Eddie said that the conversation started at twenty thirteen. I think that's really not a change for many years to online sales. And so cities are recognizing that this is important and they want to work on this to make it viable for businesses and for us as well. So I think that's why you see so many cities jumping on board. That's a
Judy Vorndran [00:41:40] good thing. But there is still that I did. I got into a lot of the hearings in the beginning where they're explaining how it is going to work and all that. And there was a lot of fear among the cities that the state wouldn't know where they were. Right. And that's not true because TTR usted rooftop rates, they know where you are. So if you have good address information as a vendor, there is a way to side step that sale and there is some complexity around understanding that. But that I think was something where people have maps and some of these countries like they really did have automation. Right. But now automation exists from the business world, which the states adopted. So you can get some accuracy around where the rate should occur.
Laurel Witt [00:42:17] And I think previously TTR, there were a couple of different vendors that they used that weren't really great at that. And I think that's what I fear came from the fact that I was a really good resource, that they actually did a really good job because the vendors and I can't remember who they are, but they just weren't as good. And I think cities were afraid of relying on a vendor that could mess up their sales tax, especially you get cities like Crestview and Mount Crestview. Oh, you think so?
Judy Vorndran [00:42:43] Yes. Yeah, I didn't even know those were two.
Ed Sealover [00:42:45] And correct me if I'm wrong, Laurel and Judy, but incumbent on this, there is a safe harbor with such a system where just in case the vendor does mess your address up, it doesn't go back on the business. That is why you go through the state.
Meredith Smith [00:43:00] Yeah, yeah, yeah. Because there's a safe harbor provision. Right. Which generally means if you have an approved system that you rely upon and you can prove out that you got here's the address. Here's the way that was generated from this. You know, you're not subject to any kind of penalties based on that reliance. Right? Correct.
Ed Sealover [00:43:22] And does that draw? Did you notice that, Rico, beyond that goes for other vendors as well as for businesses that choose to use something other than the state system to determine location and taxation?
Judy Vorndran [00:43:35] I don't think unless you're a certified software provider, which many of the vendors are actually like Vertex is and Avalere like they're all SEECP. So and I will be honest, I don't have a lot of people that would ever do manuals. I don't work with clients. So it just operates manually because that would be a big enough business necessarily to engage our firm. Most of our clients use software. Right. So really we have to make sure the software product is doing what it needs to do at the local level so they can properly collect the right rate. So that is the least of their concerns in some ways because they've already bought into having automation because they don't just care about Colorado. That's why such a thing is fine to me. But once again, most of my clients are dealing across the nation, so they can't tell one story, but they have to deal with rates. Thirty thousand rights in America, right. So there they have different concerns than just relying upon sets per say. So I feel like that just really carves out a very small piece of the tax pie. But that doesn't mean it's not an important piece for sure. A small or small medium vendor that is doing business locally, but also wants to figure out how to collect the right rate.
Laurel Witt [00:44:39] I will say just one thing. Jumping on here is that we've been looking to hold harmless provisions as well as valuable, not something that we have definitely implemented, but it's something that we've been talking about. How long have you?
Judy Vorndran [00:44:50] Oh, that's really neat, especially if people do adopt automation. I have had more of a sales tax audit in my career where people don't know how to put it in the right bucket. They don't even mean, we probably that you may be familiar with the case question now, Centrelink didn't even know where their used tax went and realized they were in one city versus another remitted to the wrong place. I mean, talk about the worst thing that could ever happen is filing in the wrong bloody city and giving them the money and then being out of statute and not getting the money back and having to owe it somewhere else.
Meredith Smith [00:45:21] Well, and I remember when I first started at KPMG in two thousand five, our sales tax guy, I was like, why does he have so many maps in his office? And like you would see him, I was like, you're a lawyer and you're like topography in your downtime. Like he would pull out these giant maps and he had them all highlighted. And he's like, OK, this addresses here because it was really before. Or like that was a good, reliable system to check the rate, and he's like, oh no, I'm validating a sales tax rate for whatever reason. I was like, Yeah, oh, that's wow.
Judy Vorndran [00:45:54] That's nothing. We can afford to hire somebody to do that, if you think about it. Right. I mean, right now, do they understand where the sale occurs? I think there's so much I don't know. Sometimes I just get so frustrated with even other CPAs, even lawyers saying, can you just give me a list? And like, there are a lot of nuances with this field that are very detail specific. And if you don't understand the details, you can't understand how to apply the tax law to it. And that is an unfortunate byproduct of our system. Just in general, that puts a lot of onus on vendors to be the invoicing arm of the government and figure out where a sale occurs. So people understand that that's not their business primary purpose. Right, to collect sales tax. So it is interesting. I wonder. I am hopeful. I guess you gotta have hope, right. That with more technology, with more information, with more money, if we're going to see assimilation and more parity and because it's just going to flow in like they we won't rely on, the grocer will rely on something different. But I do think let's just take a step back on that, because, Laurel, maybe you could explain why we have these home rolls a little bit, because there is a reason why they don't want to get along with the state. And it's not that they don't want to get along, but they want to enforce differently than the state.
Laurel Witt [00:47:13] Yeah, yeah. And I think it goes back, I mean, several, several years ago. But for cities, it's just serving the community that they're in and each of the different communities are slightly different. They have different needs and wants. You know, a ski town like Aspen is much different than some of our rural eastern Colorado communities. And so for us, having an ability to be able to elect local leaders that are directly impacting us was really important for the state of Colorado. And overall was the thing that happened. I think it was like the early nineteen twenties. It was a really long time ago. It was something that was down to a bunch of different states in Colorado. It really worked well because of the way it is in a Western state. We want to rely on the local leaders that we have. We want to be able to have some independence. So there's that and for tax purposes, being able to collect the self at our level. First of all, as we mentioned earlier, the Department of Revenue hasn't always been the most reliant source or the legislature for some of our cities for different reasons. But additionally, our cities are rural and are really in a way for them to be able to contribute and provide the services that work really well for their jurisdictions. We mentioned property taxes and sales taxes, so cities mostly rely on sales taxes. Counties mostly rely on property taxes. There's just different ways that these taxes come in and out and are able to better serve our citizens. For example, some of our cities really care about environmental reasons or environmental causes or outdoor space. So their citizens are willing to pay a little bit more taxes in order to have some of that outdoor space or for environmental causes. And that's just one example. So there's kind of different approaches to that. And it allows cities to be able to be a little bit more flexible in it.
Judy Vorndran [00:48:53] If you don't and if you don't develop everything, then you aren't going to generate revenue from it. So if you're willing if you're preserving, then where do you generate your revenue?
Laurel Witt [00:49:01] Exactly, yeah. And so the citizens are willing to pay a little bit more. They'll say vote yes here in Colorado too. We have to vote on all of our taxes in our elections. So under a constitutional amendment called Taxpayer Bill of Rights. And because of that, the last years to kind of see where do you want to spend your taxes? Do you want to have more preserved space or do you want to have more development? Do you want to do more to have more zones of the city that are for shopping districts or whatever, whatever the issue is? And it allows cities to work with their citizens a little bit more versus the state? It's kind of the same at the federal level, right? Like federal versus state like states. I'm a little bit more ability to be flexible with what their citizens mean. So do cities here in Colorado. So that's kind of the goal, is that we were getting agitated.
Judy Vorndran [00:49:45] Yeah. And I think it's important. I almost feel like if people understand the purpose of tax or the purpose of the administration, maybe they'll feel a little bit less annoyed with it. We have a lot of I feel like we have a lot of anger in America about tax and what's that? Right. And so I feel like it does provide a lot of benefit to our overall society and it preserves these communities that, quite honestly, would just get raised. You know, we can't leave open space and we can't dedicate bike paths because they don't generate revenue unless we put a toll on them. Right. So or else to fund
Laurel Witt [00:50:22] this like Aspen or or Telluride, who want these big ski resort areas that want to be able to have their spaces for all the skiers that come in and are or whatever, they're able to do that in a different way or be able to restrict buildings or whatever to be to allow their town to be more skier. I keep skiing because I think most people know that Colorado is a great place to ski.
Judy Vorndran [00:50:44] But what I will say, like Larimer straight, like that, was that it was probably the most adorable street in downtown Denver. Thank you, Dana Crawford. But that street would have been raised if those people hadn't come together and saved those buildings. And that has served to be a solace and a destination for a lot of people to see that community now because it hasn't been redeveloped. It's been, what do you call it, not a redeveloped being. We raise, I mean, reuse, constructive reuse, new buildings.
Laurel Witt [00:51:13] Yeah, all of our little downtown areas, like almost every city in Colorado, have a cute little downtown area that's for food and restaurants and are usually from the good old Western days. So those are all preserved and able to be preserved through different districts and taxing powers.
Meredith Smith [00:51:30] Yeah, well, and as we wrap up, I want to ask one more question, each of you, Laurel and Ed Laurel, what would you say are. Maybe the top two priorities, if you can kind of say that first GML in twenty twenty one, even though oddly enough, somehow the year is already almost half over.
Laurel Witt [00:51:51] Yeah, that's a good question. Thanks for asking. And so obviously we really care about how we want our cities to be able to build the cities that they love. We also really care about our secretary cities. So I think for us it's preserving the ability to to be able to do things like tax, but also do it in a way that's beneficial to businesses. So for us, it's about working together, about collaborating. So that's one of the biggest things for us moving forward in twenty twenty one is how can we continue to work with this system to be able to make it more viable both for the cities and for businesses to be able to do things like maybe add lodging taxes to it someday. That would be really helpful for some of our remote folks. So things like that, just like trying to make it more of a sustainable business long term, I think is really important for us, like having the business tax discussion so and working with the state and trying to make it the best system that we can from our side. I mean, we can only do so much, of course. But and so that's a really big thing for me as far as tax in twenty, twenty one. And additionally, I think it's just about recovery. What does it look like to recover from the pandemics of some cities? Did OK during the pandemic because of remote sellers, because they rely a lot on grocery stores and we were all going grocery shopping and that's it in twenty twenty. But there are some cities that didn't do as well, especially some of those cities in different parts of the state where people aren't still traveling during the pandemic. So I think recovery is a really big one. How do we recover from this? How do we make it so that our economies are more stable again? So those are kind of our two biggest priorities looking at those issues.
Meredith Smith [00:53:21] And what would you say is one of the best things that we should keep in mind or be aware of from a business perspective related to this kind of sales tax shift?
Ed Sealover [00:53:32] I think the overwhelming thing that I hear from readers and from business groups, from businesses is just don't forget how burdensome this can be on a small business. I think when we started this discussion as a state a decade ago, the question was, how do you get Wal-Mart to pay its taxes? How do you get Amazon to pay its taxes? And that's a lot easier for a giant corporation that has a lot of people that could be focused on this. How do you get the person who is making t-shirts out of their basement in Englewood and selling them to get to pay taxes is a lot harder. I mean, that's one person doing everything they can to run a business and then asking them to comply more and more is going to be tough. So I think the question here is not completely how do we make sure everyone complies, but how do we make sure compliance is not an overburdened right thing? Because that's if the answer is it's not overburdensome, then you will get people to comply very well.
Meredith Smith [00:54:36] And so thank you, Laurel. Thank you for being here. I think this was a really interesting conversation. And thank you for also being kind of our guinea pig on this is our first dual kind of sided conversation. So thank you for being our guinea pig. And Judy, as always, thank you for being here. I'm Meredith Smith and this is SALvation. This podcast is for educational purposes only and is not intended, nor should it be relied upon as legal tax, accounting or investment advice. You should consult with a competent professional to discuss specifics of your situation and the applicability of the information presented.
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Questions asked and answered in this Episode:
- How did Ed become aware of the SUTS issues and what is he following now on behalf of the businesses?
- Do businesses approach the Denver Business Journal as an outlet for their concerns?
- What is the Colorado Municipal League’s role in general?
- What does home rule mean?
- What has CLM heard or done to address the reluctants within the jurisdictions and municipalities they represent?
- What is Ed hearing from the business community on what they wished they knew more about?
- Did Laurel see the increase in online buying from the pandemic incentivized governments and jurisdictions to come on board?
- Is there a safe harbor with the SUTS that doesn’t go back on the business if a vendor messes your address up?
- What are the top two priorities for CML in 2021?
- What should we keep in mind or be aware of from a business perspective in relation to this sales tax shift?
What You Will Discover:
- [01:55] How Ed became aware of the issues & what he’s following now
- [07:33] Colorado Municipal League’s role
- [09:57] What does home rule mean
- [16:24] Concerns with the inability to integrate SUTS with own website
- [22:20] What CML has done to address those reluctant
- [30:46] The issues with business licenses
- [36:20] What the business community wished they knew more about
- [38:54] How the increase in online spending incentivized governments and jurisdictions
- [42:47] A safe harbor system
- [51:35] CML’s top two priorities in 2021
- [53:20] What to keep in mind with the sales tax shift from a business perspective
- “There’s a lot of concern that SUTS, while it’s wonderful for calculating and remitting taxes to the state, it’s not as useful unless you want to invest a decent amount of money hiring a contractor to interface SUTS with your website. It’s not as useful for interacting with your customers.” – Ed Sealover [17:17]
- “SUTS is not a one size fits all solution, nor is it really honestly a solution if you’re a multistate vendor selling outside of the state of Colorado.” – Judy Vorndran [18:00]
- “It is an issue that we have flagged and want to talk about again, because business licenses are something that I think are really problematic. Like there’s no way a business in Massachusetts cares about getting a business license in all the self-collecting home rules jurisdictions.” – Laurel Witt [31:57]
- “SUTS and the pandemic all kind of happened around the same time… in March of last year, which was a little bit chaotic for all of us. But as cities start seeing money coming in through that way, they just started jumping on SUTS a lot faster.” – Laurel Witt [39:32]
- “I think the question here is not completely how do we make sure that everyone complies. How do we make sure that compliance is not an overburdensome thing?” – Ed Sealover [54:19]
- Ed Sealover on Twitter: @ESealoverDenBiz
- Ed Sealover on LinkedIn: linkedin.com/in/ed-sealover-71116416a/
- Denver Business Journal: bizjournals.com/denver
- Laurel Witt on Twitter: @COMuniLawyer
- Laurel Witt on LinkedIn: linkedin.com/in/laurelwitt
- Colorado Municipal League: cml.org