Effect of HB19-1240 on out-of-state retailers:
Colorado's position on economic nexus (the state's ability to collect tax from sellers who don't have a physical presence in the state) was modified in HB19-1240. (For some background on this issue, see the newsletter we published last year after Colorado implemented its emergency regulations in response to the Supreme Court's Wayfair decision). Now that the dust has settled and HB19-1240 has become law, effective June 1st, 2019, out-of-state retailers are required to collect and remit Colorado sales tax if they sell more than $100,000 of goods in Colorado in a calendar year (or in the previous calendar year). If sales first cross over the $100,000 threshold in the current year, retailers are required to collect sales on the first of the month after 90 days of their sales exceeding $100,000.
Before we can discuss the effect of HB19-1240 on in-state retailers, we need to discuss one of the complexities of Colorado's sales tax regime: home-rule cities. You can find a list of Colorado's home-rule cities beginning on page 8 of this document
In short, a home-rule city is a city that has adopted its own sales tax laws. If a city does not choose to adopt its own sales tax system, the state of Colorado will manage the sales tax collection. Because Colorado allows cities to manage their own sales tax laws, retailers can find it hard to know what sales tax rate to charge their customers when they ship goods to different parts of the state. HB19-1240 makes that process even more difficult.
Effect of HB19-1240 on in-state retailers:
The new law implements a destination sourcing rule for state-collected jurisdictions (not home-rule cities). This means that for Colorado sales shipped to customers in any non-home-rule city, retailers will be required to collect and remit sales taxes using the rate in effect at the buyer's address. Rules for home-rule cities remain unchanged by HB19-1240 (but the requirements can still vary in each jurisdiction).
An exception is made for businesses that have less than $100,000 in sales in a calendar year. Those businesses will be able to treat all their sales to non-home-rule cities as if they had occurred at the address of the seller. Note, however, that this exception only applies until Colorado implements a Global Information System (GIS) that will make it easier to track sales tax rates throughout the state. There is currently no information on when a GIS will be in place, so stay tuned!
The new law also specifies that marketplace facilitators (ex. Amazon, Etsy, eBay) will be required to collect Colorado sales tax-not the businesses that sell their goods using the marketplace facilitators.
For more information on Colorado's sales tax rules for in-state retailers, please click here. For out-of-state retailers, please click here.
We understand that these sales tax rules can be complex and difficult to follow. If you have any questions about the above information or about how HB19-1240 applies to your business situation, please don't hesitate to contact us at (970) 223-2727.