If you’re a licensed Colorado vendor/retailer, you or your accountant should have received a Notice of Significant Changes Coming to Colorado Sales Tax from the Colorado Department of Revenue (DOR). The impacts are far-reaching and not necessarily obvious to many businesses.
What if you’re not licensed?
For those note registered, you may well have missed some important changes in Colorado.
Certainly, there are other businesses that don’t know they need to have a sales tax license and others that just haven’t registered. Since Contractors aren’t necessarily required to register, many won’t have received the notice.
What changed?
What are the risks and the remedies?
The Colorado Department of Revenue issued new Emergency Rules on 9/11/18 that implement Economic Nexus and new Sourcing Rules that require sales tax collection State-wide for all Colorado State-administered local jurisdictions.
The new Colorado Emergency Rules are in large part a result of the South Dakota vs. Wayfair U.S. Supreme Court Ruling that removed the Physical Presence requirement before states could make you collect their sales tax. Many states have since rushed to enact “Economic Nexus” thresholds like those of South Dakota.
The effective date for Colorado is December 1, 2018, though a grace period was enacted for in-state retailers.
The big change for businesses already in Colorado is the change from collecting sales tax only for jurisdictions in common with the place of delivery to their customer to now requiring collection for all State-collected local jurisdictions.
Unfortunately, many businesses whether large or small or old or new just don’t understand what’s required and how to properly comply with Colorado’s State and home-rule jurisdictions’ sales and use tax laws.
Some that should be licensed with the State DOR aren’t licensed. Others who are licensed don’t have all the Branch Ids needed to collect for the state-collected local jurisdictions they are doing business in outside of their local area. Performing just one installation in a state-collected jurisdiction outside their own area triggers a requirement to collect that jurisdiction’s sales tax.
Note: Just delivering into a home-rule city generally triggers a requirement to license with them and collect their sales tax!
Contractors in Colorado have a particularly difficult time with Sales Tax and with its often unknown counter part “Use Tax”. Determining whether or not the Colorado DOR or a home-rule city like Denver, Colorado Springs, Aurora, Fort Collins, Lakewood and another 65+ cities will consider the activities as construction on Real Property or not is difficult. Even if a building permit is in place, some of the subcontractors’ work might not be covered.
One big risk is if they incorrectly presume they are considered as Contractor and bill lump-sum. If an auditor determines they were actually just selling and installing tangible personal property, the auditor will assess sales tax plus penalties and interest on the entire invoice! This is because mixing a taxable and nontaxable time and materials weren’t broken out to show nontaxable labor. Since there isn’t a sales tax license and no returns were filed, the three year Statute of limitations never starts.
A second big risk is that even presuming they are a Contractor for Colorado State DOR purposes, home-rule cities view things very differently. Kitchen Cabinets, flooring and HVAC units are a few common examples where home-rule cities may well assess the contractor on the entire lump-sum invoice.
How can we help?
We can help you determine if the changes impact you.
We can help you understand and comply with the new requirements including adding nonphysical location Branch Ids, preparing an unload Excel spreadsheet to file
We can help resolve prior issues if you haven’t been properly complying with Colorado State, home-rule cities in Colorado or other states’ rules often through Voluntary Disclosure Agreements.
We can help minimize the risk through establishing best practices.
We can discuss other common Colorado and multi-state sales and use tax pitfalls that are beyond the scope of this Tax Tip.
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