Business owners now have until May 31 to comply with new rules regulating how they collect sales tax when shipping throughout the state, the Colorado Department of Revenue announced last month.
The new rule went into effect Dec. 1. Businesses were originally given a grace period through March 31 to meet the new standards, but CDOR extended that deadline by an additional two months to “take the time to get this right,” the department said in a news release.
Under the new regulations, merchants who sell and deliver goods outside the tax jurisdiction of their brick-and-mortar locations must charge the sales tax rate of the jurisdiction where the product is delivered.
“Simply put, where the customer takes possession of a product or service will determine the amount of sales tax owed,” Daniel Carr, taxation communications manager for CDOR, told the Courier by email. The rules are only applicable to state-administered jurisdictions, he said, and do not apply to home-rule jurisdictions, like the City of Woodland Park.
Previously, Carr said, retailers collected sales tax only on common jurisdictions, “where both the retailer and the consumers shared the same jurisdiction” — which always included the 2.9 percent state sales tax and some special district sales taxes. With the rule change, businesses are required to collect “all state, local and special district sales taxes relevant to where the good or service is delivered into a state-administered jurisdiction.”
Retailers are also required to register each of the nonphysical locations where they sell goods into the state’s database.
New sales tax regulations were announced in September and were prompted by a Supreme Court decision this summer, which eliminated requirements for a business to have a physical presence to collect sales tax and now requires online retailers to collect and remit sales tax on online purchases.
“The sourcing rule was based on our analysis of existing practices and their compliance with established Colorado law,” Carr told the Courier in an email. “Colorado is one of 32 states moving in this direction.”
It is meant to “level the playing field,” according to a CDOR statement issued in October, so that “no business has a particular advantage from a sales tax perspective.” Under previous rules, there were “discrepancies on the taxes due and paid based on who and where the buyer (purchased) from.”
But the new rules have been met with apprehension by some retailers throughout the state, who have criticized the new sales tax regulation changes, saying they are costly and overcomplicate an already convoluted sales tax and use system.
“For businesses the focus is on the bottom line, which is making a profit. When you add another layer — and this is another layer — it’s going to be a challenge,” said Deb Miller, president of the Greater Woodland Park Chamber of Commerce.
Those layers add up for retailers who deliver, like Tweeds Fine Furnishings. Owner Tanner Coy said a lot of his business is done outside Woodland Park, where his store is located.
“If someone from Colorado Springs orders a custom sofa and chairs, they typically want delivery. The items are shipped to the store, then delivered to Colorado Springs, where the sales tax is then remitted to the City of Colorado Springs,” Coy explained.
New sales tax regulations create an unrealistic amount of work to enter and collect the appropriate sales tax from each tax jurisdiction, Coy said, so he’s decided to default all sales tax to the Woodland Park rates as though the customers are picking up their items in store.
“Otherwise, we’d have to enter every entity’s sales tax for every single transaction and I think that’s just insane. I don’t think it’s realistic for any business like mine to track every ... sales tax and then levy, collect and remit them accordingly. I’d go so far as to call it darn near impossible,” Coy said.
For cities like Cripple Creek, Victor and Green Mountain Falls, most of these can be remitted to the state, since the Department of Revenue is the single state authority which registers, collects, distributes and audits sales taxes for all state-collected jurisdictions in Colorado.
“The Colorado Department of Revenue does not require retailers to register separately with state-collected local jurisdictions to collect local sales taxes,” so “there is no change on registration requirements with the new rules,” Carr said.
But for home rule cities like Woodland Park, which collect their own taxes, there may be a “separate requirement for retailers doing business in their jurisdictions to register with them for a business license,” Carr said. “But that has no impact on the administration of sales tax.”
Teller County retailers like Foxworth Galbraith, a Texas-based lumber and building material supplier, are already working to comply with the new regulations and update software with tax season on the horizon.
Jim Olsen, general manager at Foxworth Galbraith’s Woodland Park location, said the new regulations mean more bookkeeping on their end.
“It’s taken three days to get everything in a row in our computers and systems,” Olsen said of the company’s preparations to comply with the regulations and for tax season. “We needed to figure out how to charge the correct taxes on our invoices and get all that information together.”
Olsen said that since the company is located in Woodland Park, Foxworth Galbraith has “always had to collect different taxes (due to) home rule” regulations, and doesn’t expect the new state regulations to negatively impact their business dealings.
“But it’s going to affect businesses who aren’t used to that. It will be a big burden for them,” he said.
“Change is always challenging and this is going to change how some businesses do business,” Miller said.
The Department of Revenue will “evaluate the need for another extension as May 31 nears, but in the meantime businesses must collect and remit sales tax, either under the previous rules or the newly implemented rules,” Carr said.
Visit the CDOR website for more information for in-state retailers and to see the new registration process for adding new taxing jurisdictions and non-physical locations.
Those with suggestions on how the Department can make the transition easier for in-state businesses, within the constraints of existing Colorado law, may email the Department at DOR_SalesTaxChanges@state.co.us.