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Important Colorado Sales Tax Changes Retailers Need To Know Now

Important Colorado Sales Tax Changes Retailers Need To Know Now

Sales tax legislation is constantly evolving, and while the changes can be complex and difficult to keep up with, sometimes the legislation is actually an attempt to simplify the sales tax obligations already present in the state. Colorado is one state that is working on changing their complex sales tax legislation.

After being introduced in January of 2022, Senate Bill 22-032  was signed by Colorado Gov. Jared Polis in April. This bill outlines several changes to Colorado’s tax code, which we discuss in detail below.

The Complexities Of Colorado State Sales Tax

Back in February, we wrote an article about the sales tax process in Louisiana, where retailers are required to collect and remit sales tax in each parish (or county) in addition to the state level. In that article, we broke down the lawsuit that Halstead Bead Inc. filed against the state, which stated that requiring businesses based out of other states to file reports in each parish creates a “compliance nightmare.”

The state of Colorado also has sales tax legislation that can be difficult to comply with, referred to as the “Home Rule” city system. This system allows certain cities in the state to set their own sales tax rates, rules and regulations. As a seller, this requires you to collect, file and remit sales tax in each city separately, plus file with the Colorado Department of Revenue for the state’s portion of the tax. This is similar to the “parish-by-parish” requirements in Louisiana. In 2017, the Sales and Use Tax Simplification Task Force was implemented in Colorado to simplify the process. As a result, Colorado also implemented the Sales & Use Tax System (SUTS), a statewide portal for tax collection put in place by the Department of Revenue (DOR) in 2o2o. As of today, close to 50 of Colorado’s 70-plus Home Rule cities can receive sales tax returns through SUTS. Check out the full list here.

In addition, in January 2022 Gov. Polis signed HB22-1027, which extended the small business exception to destination sourcing requirements. According to the bill, state sales tax is currently calculated based on the buyer’s address when the taxable product or service is delivered to a consumer, and this is known as “destination sourcing.” There is an exception that allows small retailers with less than $100,000 of retail sales to source their sales to the business’s location, regardless of where a purchaser receives the tangible personal property or service. This exception, however, expired on February 1, 2022. The bill extends the repeal of the exception from February 1, 2022 until October 1, 2022.

What Changes Does Bill 22-032 Bring To The Colorado Sales Tax System?

Bill 22-032 aims to simplify local sales and use tax compliance and administration for retailers that make sales in local taxing jurisdictions where they have limited physical presence.

To streamline the sales tax compliance process, this bill asks the Department of Revenue to require sufficient information be collected from the retailer through SUTS at the time of application or renewal of their state standard retail business license. This information also needs to be available to the local taxing jurisdictions to ensure all concerns are addressed. The department is also required to consult with local jurisdictions prior to filing to help determine what information is needed. This all needs to be completed by July of 2023.

Beginning in July 2022, Bill 22-032 prohibits local jurisdictions from charging fees for general business licenses to retailers who already hold a standard license issued by the state (unless their license had been revoked in the past for noncompliance). It also requires the Department of Revenue to consult with business owners to address any “reasonable concerns” they have about taxes. Additionally, the bill prohibits the local taxing jurisdiction from requiring retailers with a license to apply separately with them for a business license, though this part of the bill will not begin until July 2023. These changes, while they sound complex, should make sales tax compliance less of a headache for retailers who do business across the state.

Have a question? Contact Monika Miles, Miles Consulting.

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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