By Judy Vorndran, as seen in the Colorado Bar Association Tax Law Section
Every business selling into Colorado will be impacted by the statewide Sales and Use Tax System going live now.
Colorado has one of the nation’s worst sales and use tax system. In Colorado, sales taxes are imposed by the state government, counties, home rule municipalities, and special districts. Overlapping boundaries create more than 700 unique tax jurisdictions, many with different tax bases, rates, and administrators (Colorado Legislative Council Staff).
The Council on State Taxation (COST) issued a 2018 scorecard identifying the best and worst states relative to balanced, fair, and effective sales tax administration systems. Colorado got an “F” rating for its overly complicated and burdensome sales tax system, placing it among the bottom three states across virtually all scorecard categories, two of which–Colorado and Louisiana, were called out for poor grades on central sales tax administration.
That may be about to change with the rollout of the statewide Sales and Use Tax System (SUTS). The platform is a common point of registration and remittance for local sales and use taxes. SUTS is a public private partnership that will benefit all businesses selling in Colorado. Three years in the making from concept to execution, the SUTS system allows businesses to go to a single website to find all sales and use tax rates associated with a specific destination and file a single remittance that goes to multiple jurisdictions. Licenses are required for each city, which can also be input and added into the SUTS system and saved for future use.
The platform is the collaborative brainchild of the legislative Sales and Use Task Force, of which I have been an active member since inception in 2017, and the Coalition to Simplify Colorado Sales Taxes, where I am a board member. Stakeholders including four legislators, a representative from the Colorado Municipal League, a large city (Denver), a small city (Lakewood), two counties, a tax attorney, the Colorado Association of Commerce and Industry (CACI), the Colorado Society of CPAs as well as business owners have been engaged throughout the process. From designing the functionality, procurement, development, and ongoing improvements, it has been a powerful working group that has collaborated to help make Colorado’s sales tax structure simpler. I hope it is a step into a future of making sales tax less taxing in Colorado!
Among the many benefits, SUTS:
- Simplifies the registration and remittance burden on businesses and vendors in the state
- Creates a central point of access for taxpayers instead of requiring taxpayers to visit city councils’ own sites for specific rules and rates
- Relieves cities of having to create or maintain their own proprietary system
Will likely allow for a single Wayfair mandate to allow home rules of
- Colorado to impose an economic threshold standard
Where are we
Right now, home rule participation in SUTS is voluntary. But once a critical mass of cities are on board, we can expect to see the state’s Wayfair definition of economic nexus–$100,000 of sales or 200 transactions into the state–adopted by home rule cities through statute and ordinance, making taxpayer participation in collecting home rule cities mandatory for vendors who meet the state threshold.
That time is fast approaching. There are 71 home rule cities in Colorado being directed to the SUTs platform administered by the state. As of Oct. 2, 2020, 32 home rules cities were signed up and participating. Another 23 were under review and 15 were pending signatures. In addition to SUTS statewide filing portal for local sales, the Sales and Use Task Force is engaged in a second important project for streamlining tax duties: a geographic information system (GIS) to help vendors and tax administrators determine the location of the buyer for sales tax sourcing
Helping your clients stay current
Even though SUTS makes it easy to register, taxpayers should be wary of prior nexus in a home rule before registering. You cannot just ignore three to 10 years of prior nexus by registering tomorrow. It is important to understand prior nexus to properly approach future compliance. This might involve remediation in the various home rule cities if prior tax exposure is high. There is no statute of limitations if you have never filed with a tax jurisdiction. So even if a taxpayer did file for a future date, the cities could come back and audit prior years as well as impose penalties and interest for late filings.
States are likely to follow Colorado’s lead here to simplify sales tax administration for vendors and tax authorities alike. Read more at, Will states follow Colorado Sales tax move?
Track developments in SUTS:
- CDOR dedicated website for SUTS updates (includes a demonstration of the SUTS system)
- SUTs list of home rule self-collecting taxation jurisdictions
- SUTS participating municipalities, counties and special districts
Judy Vorndran, J.D., CPA, and lead state and local tax partner at TaxOps has been at the table — and in the weeds — guiding dynamic businesses through the morass that is state and local tax for roughly 25 years. Visit SALTovation.com for state and local tax support and subscribe to Tax News for regular updates.
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