The Colorado Department of Revenue has extended the grace period for retailers who sell to customers in the state to collect and remit state sales taxes from March 31 to May 31.
The new rules officially went into effect Dec. 1. They affect both out-of-state and in-state businesses that sell to customers in other jurisdictions.
“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,” Colorado Department of Revenue Executive Director Mike Hartman said in a Dec. 6 release.
“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,” Hartman said. “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.
“Despite the automatic reprieve, the Department requests that businesses with the sophistication and capability to collect and remit sales tax on internet sales based on where the good or service is being delivered do so as quickly as possible in advance of the May 31, 2019 enforcement deadline. The Department has upgraded its systems and processes to make compliance as simple as possible. We will continue to engage the business community to address their remaining concerns.
“This is an opportunity to simplify sales tax for all parties: for businesses that collect and remit sales tax, for customers who pay it, and for those of us in state government whose obligation it is to carry out the tax laws passed by the state legislature. No one desires a streamlined and simplified sales tax collection and compliance system more than the Department of Revenue.”
“We’ve gotten a lot of calls from members who say this is going to be detrimental,” said Rachel Beck, vice president of government affairs for the Colorado Springs Chamber and EDC. Beck was among a number of advocates and businesses who testified before state regulators at a Nov. 30 hearing.
“There’s really a lot of consensus that this is premature,” Beck said of the March 31 deadline. “We support the principle … of fair and comprehensive taxation” of online sales. “The problem is the timing. We are halfway through the [fourth] quarter and in the middle of the peak shopping season.”
Beck said the chamber is hearing from businesses that the new rules will have drastic effects in terms of costs and administrative burdens and that they don’t know how to comply because the system is so complicated. Beck shared emails the chamber has received with senders’ names redacted.
“As a manager of a very small business, I find its implementation strangling,” one business person wrote in an email to the Department of Revenue, with a copy to the chamber. “… My immediate reaction was to cease all sales to Colorado residents for our company.”
“We can’t even seem to gain a clear picture from the Colorado Department of Revenue on what jurisdictions this will all affect, i.e., city and county taxes, home rule cities, etc.,” another small business owner wrote in an email to the chamber. “We are a distributor that could theoretically direct ship … into every state in the nation. … We could work with a third-party vendor through our software company to collect the data, which would essentially render our distribution business unprofitable. However, even then, it is unclear how the taxes would be reported or remitted.”
Beck said the Colorado Springs Chamber, Colorado Chamber of Commerce and other businesses and organizations are asking the department of revenue to postpone implementation of the new rules until July 1.
“The Legislature this summer had a sales and implementation task force that recognized Colorado’s [sales tax] system was one of the more complicated in the nation and was working on remedying that,” Beck said. “We’d like for the Legislature to have time to finish that work before adding more regulations.”
A June Supreme Court decision in a case titled South Dakota v. Wayfair opened the door to new tax revenue sources for states, municipalities and other taxing jurisdictions.
In that decision, the court overturned at 26-year-old precedent and ruled that states can require online retailers to collect and remit sales taxes regardless of whether they have a physical presence such as a warehouse in the state.
The justices said states can’t put an excessive burden on interstate businesses but did not specify what constitutes an excessive burden.