Colorado’s Sales Tax Regime

Over the last several years, retailers across the U.S. have needed to adjust to the widespread implementation of economic nexus as a direct result of the ‘Wayfair’ Supreme Court Decision. A handful of states – with the Colorado sales tax regime at the top of the heap – add an additional layer of complexity.

Bottom line – ‘home-rule’ states, create a tax burden that can be overwhelming. Colorado is arguably the most challenging regime as a direct result of ALL 70 home-rule municipalities and their draconian collection enforcement standards. On a bright note, and much to the relief of retailers, Colorado is now making strides streamlining local sales tax collection for remote sellers within the state.

What Makes Colorado’s Sales Tax Regime So Complex?

A home-rule state gives local government entities, including municipalities and counties, the authority to establish and levy their own sales taxes, separate from state sales tax regulations. Much like economic nexus laws, tax regulations vary wildly between home-rule jurisdictions, even within the same state.

What this means is that a retailer who makes sales in Colorado will need to individually contact each local tax authority to determine whether they are obligated to collect and remit sales tax on their products, and what rate they will need to collect at. Then in many instances, they must file a separate return with each tax authority.

This can be a horrific situation for smaller retailers that trigger economic nexus within Colorado but do not have large accounting departments.

What Is Colorado Doing to Reduce the Burden?

In 2017, lawmakers in Colorado established the Sales and Use Tax Simplification Task Force (SUTS). As a group, SUTS studies…

“sales and use tax simplification between the state and local governments, including home rule municipalities to adopt innovative revenue-neutral solutions that do not require constitutional amendments or voter approval.”

Two solutions have emerged from the SUTS’ collective efforts:

1. The Sales & Use Tax System (SUTS), a statewide portal for tax collection implemented by the Department of Revenue (DOR). SUTS Business Enrollment Update.

Business registration continues to grow, with 2,146 businesses signed up to use the Sales & Use Tax System (SUTS) as of January 2021.
The total number of home rule, self-collecting jurisdictions to 70.
27% of home rule, self-collecting municipalities are reviewing and evaluating the system.
11% of home rule, self-collecting municipalities have started the process of securing signatures for the agreement.
61% of home rule, self-collecting municipalities have signed the agreement and are onboarding the system.

2. A model ordinance for home rule municipalities developed by the Colorado Municipal League and the DOR.

The Colorado Municipal League (CML) model ordinance on Economic Nexus and Marketplace Facilitators was developed in early 2020 by home rule municipal tax professionals, in conjunction with the business community and the Department of Revenue, as part of a sales tax simplification effort.
The Model Ordinance is only for the 70 self-collecting home rule municipalities in Colorado. It has long been recognized, by governments and businesses alike, that various home rule municipalities giving the same term different meanings is a source of complexity in our tax system for businesses that operate in multiple municipalities.
Use of “standardized” definitions, such as those put into the Model Ordinance, can help minimize this complexity and provide clarity to those remitting taxes to governments that self-collect on the local level in Colorado.
Home rule municipalities that have joined SUTS are also encouraged to adopt the model ordinance.
On the flip side, those municipalities that do not join SUTS are asked not to adopt the language on economic nexus and move forward with voluntary compliance.

These two solutions working in tandem should simplify sales tax compliance for remote sellers to a reasonable degree, especially as municipalities continue to adopt them.

Filed under – ‘Believe it when you see it’

“Municipalities who are not going to be joining the state single point of remittance portal (“SUTS”), are being asked to adopt the language on economic nexus and continue to move forward with voluntary compliance.”

Purportedly because:

“The risk of a lawsuit under the United States Commerce Clause if you were to enforce economic nexus without the single point of remittance is high.”

If you made it this far in the post – thank you for reading! Put yourself down for a raise and take the rest of the week off!!

Seriously – if Sales Tax is something you prefer to outsource – contact me today. My team and I are here to serve.

Additional Resources

A wonderfully helpful tool for retailers to determine the jurisdictional sales tax reporting requirements is the Colorado Department of Revenue’s sales tax address lookup tool -> https://colorado.ttr.services/