Fascinating Raminfications Of Colorado’s New Online Sales Tax

Monika Miles, multistate tax, colorado, online sales tax

As we’ve been following the online sales tax debate in previous posts, we’ve mostly approached the issue as it affects the country as a whole. While Congress has continued to debate how to handle taxing internet shoppers, however, states have been taking matters into their own hands. This upcoming series will look at new legislation coming out in different state legislatures across the country, beginning with Colorado.

A Summary of Colorado’s Online Sales Tax Legislation

Colorado has been at the forefront of the internet sales tax debate since 2010, when it passed a law that required companies with more than $100,000 in sales that did not have nexus in the state to do two things:

1. Alert Colorado customers that Colorado sales or use tax is due.
2. File annual reports to the state, listing all the names, purchases and shipping addresses of Colorado customers.

Although this legislation seemed egregious to most of us in the business, it went to court and, after many rounds in various courts, the law will now be effective as of July 1, 2017 because the U. S. Supreme Court denied certiorari – meaning they won’t hear the case. There have been some recent modifications that stipulate retroactive reporting won’t be necessary, but businesses will need to report on all sales after July 1 of this year.

There are a couple of keys to this legislation that make it legal in the eyes of the court:

  • It doesn’t discriminate against or unduly burden interstate commerce
  • The application of Quill v. North Dakota is limited to sales and use tax collection; because the retailers aren’t actually collecting the taxes, the precedent set forth in the prior court case doesn’t stand

For a more in-depth summary of the legislation and its history, our colleague, Diane Yetter at the Sales Tax Institute, does a great job of providing all the details to-date as well as updates along the way.

Colorado’s Potential Upcoming Sales Tax Legislation

A new bill is circulating in the state that might remove reporting rules for e-retailers. An e-commerce trade association is saying the law set to take affect July 1 invades Colorado’s consumers’ privacy by reporting names, purchases and shipping addresses to the Department of Revenue. The new draft bill removes this requirement from e-retailers, although they would still need to provide customers with an annual report of purchases and notify them they need to pay state taxes on those purchases.

Ramifications of Colorado’s Online Sales Tax Legislation

Colorado is the first state to enact a law that’s being upheld by the courts; it will be interesting to see how other states follow suit. It’s likely that legislatures across the country will look at this law as an example to follow as they develop their own online sales tax legislation.

How does this affect the consumer? Colorado shoppers are going to be held accountable for purchases made from out-of-state businesses. Even if a retailer doesn’t charge them sales tax, the shopper will be notified of the taxes due to the state and the consumer’s responsibility for paying them. If nothing else, the state’s residents will need to pay much more attention!

How are other states approaching the online sales tax debate? Stay tuned for our next post in the series, when we’ll take a look at Alabama!

Monika founded Miles Consulting Group which focuses on multi-state tax consulting, helping clients navigate state tax issues such as sales tax and income tax in interstate commerce, including e-commerce.

Prior to forming the firm, Monika worked for 12 years combined in Big 4 Public Accounting and private industry. Monika has provided such services as federal and state income/franchise tax compliance and consulting, sales/use tax consulting, audit support, and credits and incentives reviews. She has served clients in a variety of industries including manufacturing, technology, telecommunications, construction, utility, retail and financial institutions.

Monika graduated from the University of Texas at El Paso (UTEP) with a BBA in Accounting/Finance and has a Masters in Taxation from San Jose State University.

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1 comment on “Fascinating Raminfications Of Colorado’s New Online Sales Tax”

  • John R. Dundon II, EA

    Hi Monika – GrEAt info here! Forwarding this post to the Colorado Society of Enrolled Agents FaceBook page.

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