Because every state is allowed to manage its own sales tax system, some businesses find it difficult to comply with the sales tax rules for every state in which they do business. Colorado's sales tax regime is notoriously complex. Beginning December 1, 2018, retailers who ship to Colorado customers will have to calculate sales tax at local rates based on where the customer lives. Additionally, some Colorado sales tax rules for out-of-state and online businesses will be changing as of December 1, 2018. In this newsletter, we will discuss Colorado's response to the U.S. Supreme Court's sales tax decision in South Dakota v. Wayfair, Inc. and what the case means for Colorado businesses.
Previous to the Wayfair case, states could not require businesses to collect and remit sales taxes unless they had a physical presence (defined differently by each state) in the state. This gave online retailers a comparative advantage over brick-and-mortar retail stores because their customers could pay less out of pocket for the same goods.
In the Wayfair case, the U.S. Supreme Court changed the rules to allow states to collect sales tax from businesses with no physical presence in the state. Colorado quickly jumped at the opportunity to receive more sales tax revenue. On September 11, 2018, the Colorado Department of Revenue (CDOR) issued a news release stating that out-of-state retailers doing business in Colorado will be required to obtain a state sales tax license between November 1, 2018 and November 30, 2018 and collect sales taxes beginning December 1, 2018.
An exception is available for out-of-state retailers whose annual Colorado sales are less than $100,000, or who have less than 200 transactions in Colorado per year.These businesses exempt from the sales tax requirements may still have to comply with Colorado's use tax reporting requirements.
Determining whether this is good news or bad news for your business is a matter of perspective. If you have a Colorado-based business, this is good news because your online retailer competitors just lost an advantage. On the other hand, if you have an online or out-of-state business and sell in Colorado, you should buckle up, because your sales tax compliance ride is about to get bumpy.
Employee Spotlight - Nathan C. Bush
Nathan joined the team at Soukup, Bush & Associates in June of 2017. As a Fort Collins native, he attended and graduated from Colorado State University as well as the University of Northern Colorado with a Bachelor of Science degree in Accounting, Finance, and Marketing.
Before becoming a part of the Soukup Bush team, Nathan worked in wealth management in Tempe, Arizona and Fort Collins. He now prepares individual and business tax returns and also assists with attestation services.
In his spare time, Nathan enjoys spending time with his family and friends, golfing, attending trivia nights, and taking in the local music scene.
You can review the CDOR news release here. Additional information from the CDOR's FAQ page can be found here.
If you have any questions about how Colorado's response to the Wayfair decision might affect sales tax requirements for your business, please contact us at (970) 223-2727.