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Focus on State & Local Taxation: Big Changes in Colorado As New Sourcing Rules Take Effect

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Effective December 1, 2018, the Colorado Department of Revenue will begin enforcing new emergency sales tax sourcing rules that will significantly impact all retailers doing business in Colorado. The new rules require all Colorado taxable sales to be taxed at the effective rate of the jurisdiction in which property is transferred into the possession of a purchaser. While the rule has no effect on purchases that occur at a retailer’s business location, the big change occurs when items are shipped to Colorado customers.
October 24, 2018

Effective December 1, 2018, the Colorado Department of Revenue will begin enforcing new emergency sales tax sourcing rules that will significantly impact all retailers doing business in Colorado. The new rules require all Colorado taxable sales to be taxed at the effective rate of the jurisdiction in which property is transferred into the possession of a purchaser. While the rule has no effect on purchases that occur at a retailer’s business location, the big change occurs when items are shipped to Colorado customers.

When a customer orders a product shipped to their home or business, a retailer will now be required to collect sales tax at the rate imposed by the jurisdictions where delivery occurs. This change represents a major shift from the former standard that required retailers only to collect taxes that were in common between a customer’s address and the seller’s business location. Thus, the new rules will require Colorado retailers to review and adjust the rates charged to customers on shipped items to ensure the appropriate local and special district sales tax is being collected at the time of purchase.

The new rules also require that a “non-physical” location be added to a retailer’s Revenue Online account for every jurisdiction in which a retailer ships taxable items in Colorado. A retailer is then required to file a sales tax return for each jurisdiction in which sales occur. This new compliance obligation will substantially impact Colorado retailers who ship items to many of the State’s approximately 300 taxing jurisdictions.

This rule change comes in the wake of the U.S. Supreme Court’s Wayfair decision which overruled the standard that required sellers to have a physical presence in a state before a retailer was obligated to collect and remit a jurisdiction’s sales tax. Following the decision, remote sellers can now be required to collect and remit sales taxes based solely on their economic activity in a state.

Colorado’s emergency sales tax rules adopt an economic presence threshold requiring retailers to collect and remit sales tax when a retailer has $100,000 in gross receipts or 200 separate transactions delivered into Colorado in a calendar year. Retailers who now meet the economic nexus threshold will also be required to add non-physical locations and file returns for each state-collected local and special district jurisdiction in Colorado to which the retailer ships its taxable property.

The new Colorado rules will require many retailers doing business in the state to drastically rethink their current compliance procedures. RubinBrown’s State and Local Tax (SALT) professionals can help to answer your questions or evaluate the impact that the emergency rules will have on you and your business. Please contact one of the SALT professionals listed or your primary RubinBrown contact for assistance.

 

Readers should not act upon information presented without individual professional consultation.

Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.

 

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