Local businesses that ship throughout Colorado will have a few more months to comply with a change in sales tax regulations that retailers fear will be a costly blow.

The state Department of Revenue said Thursday that it will extend a “grace period” from March 31 to May 31 before it begins enforcing the new rules, which took effect Saturday in the midst of the holiday shopping season.

The regulations, announced in September, require retailers to charge the sales tax rate of the jurisdiction where a product is delivered. Previously, if a Colorado Springs business shipped an item to another area of the state where the business did not have a physical location, it would charge the state 2.9 percent sales tax, as well as any special district taxes levied at the shipment’s destination, which are also collected by the state.

“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,” the department’s executive director, Mike Hartman, said in a statement. ”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.”

Officials who objected to the rule change said the delay will give the state more time to work with local businesses on the change.

”We’re really pleased that the Department of Revenue listened to the concerns of the businesses and is adding additional time for us to figure out how to make this work,” said Rachel Beck, vice president of government affairs for the Colorado Springs Chamber & EDC, which has heard from dozens of businesses worried about the new rules.

Even with the extra time, concerns remain for businesses, which will likely need to invest in new databases to calculate specific sales tax rates and pay for additional bookkeeping to maintain compliance.

Many of the databases that retailers use to calculate sales tax rates aren’t equipped for the new regulations, said Kara Longmire, an executive at a company that sells point-of-sale software to about 50 Colorado rental businesses.

Such databases often provide sales tax rates by ZIP code, but because one ZIP code might contain multiple taxing jurisdictions, businesses now must know the exact tax rate of the address they are shipping to, said Longmire, co-president and CEO of Colorado Springs-based Alert Management Systems.

“It’s going to be really difficult to try and figure that out,” she said Wednesday. “The reporting is going to be an absolute disaster.”

If a business uses one of five databases certified by the state to calculate the sales tax rates, then it won’t be penalized for mistakes, said Department of Revenue spokesman Lawrence Pacheco. The databases charge user fees, but Pacheco did not know how much.

Businesses have noticed that state-recommended databases aren’t always accurate, said Tony Gagliardi, state director for the National Federation of Independent Business.

“They’re just not ready for prime time,” said Gagliardi, who also serves as chairman of the Coalition to Simplify Colorado Sales Tax.

“I’m still hearing on a daily basis from businesses that weren’t aware that this was in the process.”

He also offered kudos to the department for extending the grace period and noted that the state is home to roughly 700 entities that levy taxes and is already known for an overly-complex sales tax system.

”The decision to put the rule off until May speaks to the effort of the Colorado businesses who knew that this was going to have a dramatic adverse affect on the way they do business without the proper tools being in place,” he said. “I would commend the Department of Revenue to taking this step and basically calling a time out on itself and saying, ‘Let’s take another look at this and be sure we’re looking at it the right way.’”

State Rep. Terri Carver and state Sen. Bob Gardner asked the Department of Revenue in a Nov. 29 letter to delay the change.

“We really need to pull back and do much greater consultation with Colorado businesses on a more workable process for sales tax collection,” Carver said.

She and Gardner, both Republicans from Colorado Springs, are looking at legislation to identify a more “workable approach” for Colorado’s sales tax system, she added.

The regulations were prompted by a decision last summer by the U.S. Supreme Court, which overturned a ruling that said retailers only had to collect and remit sales tax to a state if they had a physical presence in that state.

Hartman, the department’s executive director, has said the changes are intended to “level the playing field for Colorado businesses” by requiring out-of-state retailers to collect state sales tax the same as in-state retailers.

In his Thursday statement, he said the department will “evaluate the need for another extension as May 31 nears.”

”The Department has upgraded its systems and processes to make compliance as simple as possible,” he said. “We will continue to engage the business community to address their remaining concerns.”

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