As shopping season starts, so do new sales tax rules

New rule effective Dec. 1, but with a grace period stretching to May 31, 2019

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Editor's Note: On Dec. 6, Colorado Department of Revenue Executive Director Mike Hartman issued the following statement:

“As part of our rulemaking process to implement sales tax rules for in-state and out-of-state retailers, we have heard from legislators and the business community, and the Department of Revenue agrees it is important for the state to take the time to get this right.

“As such, the Department is extending the automatic reprieve for Colorado businesses and out-of-state retailers to comply with the emergency rules from the current March 31, 2019 deadline to May 31, 2019. We will evaluate the need for another extension as May 31 nears. This additional time will give the state legislature an opportunity to find innovative solutions to streamline and simplify our sales tax collection laws in accordance with the wishes of the residents of Colorado.

The Colorado Department of Revenue enacted an emergency rule Sept. 26 that makes it mandatory for retailers in Colorado who ship goods out of their own jurisdiction to collect sales tax on the merchandise based on the rate of where the product is shipped.

Whether a seller ships items across town, across the state, or out of state, the retailer is responsible for identifying, and charging, the tax for every item shipped.

According to Dan Carr, Department of Revenue Taxation communications manager, Colorado was one of 33 states who enacted emergency rules after the supreme court ruling in the case of South Dakota vs. Wayfair, in which South Dakota won the right to receive sales tax on items purchased on the internet and shipped to the state.

“With the Wayfair decision, we can now require out of state retailers to pay sales tax in the state where the items are shipped,” said Carr. “The purpose was to make sure the playing field was level and to standardize tax laws, bringing consistency and fairness to sales tax laws.”

The DOR has created a website, colorado.gov/tax, that will help retailers in Colorado navigate the new law, which includes frequently asked questions, access to a call center to have questions answered, and lookup lists for all the sales taxes. Webinars are also available on the website.

“They have created a `hold harmless’ list, which means if a retailer uses the platform and the charge is wrong, they will be held harmless,” said Carr.

Timing

The new rule, set to go into effect Dec. 1, could worry Colorado retailers expecting to ship thousands of packages out of their jurisdiction for the holiday shopping season.

But Colorado Representative Tracy Kraft-Tharp, D-Arvada, chair of the sales and use tax streamlining committee, said merchants shouldn’t panic about the Nov. 30 deadline. The department has stated they won’t enforce the rule until March.

“Business owners are thinking `how do we do this?’” said Kraft-Tharp. “But the department has said they won’t enforce the rule until March 31, to give people the opportunity to figure out how to do it. They’ve put webinars up on their web page explaining how to do it.”

According to Kraft-Tharp, the issue of who should get taxes on items sold over the internet has been a hot button for many years, and the new rules will level the playing field.

“Before South Dakota vs. Wayfair, the law of the land was that internet sites could charge sales tax if they had a physical presence in the state,” said Kraft-Tharp. “This has opened the door for all states to say `we can fix this unfair competition problem and start telling internet sites they have to pay sales tax.’”

Kraft-Tharp said the new law could bring in as much as $48 million dollars this year that would be collected and remitted to the state and up to $200 million each year going forward.

“That will be enforced through audits and check to see who is paying and who isn’t,” said Kraft-Tharp. “There is an enforcement division at the department.”

While the rule includes a small-seller exception for out-of-state retailers, with in-state sales of products that do not exceed $100,000 or 200 transactions annually, there are no exceptions for in-state retailers.

“There is no minimum amount if your business is domiciled in Colorado,” said Carr.

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