The Colorado Department of Revenue (DOR) issued Emergency Rules on 9/11/18 that impacted both In-state and Out-of-State retailers. The rules on “doing business” added Economic Nexus (Wayfair) and Sourcing were adopted and became effective December 1, 2018.
A lot has happened as a result. This article is designed to give you a detailed overview of the situation and information on how to comply with Colorado’s complex system of State-collected and local home-rule jurisdictions’ sales and use tax laws.
The Colorado DOR has multiple webpages and videos with information about the Colorado Sales Tax Changes.
I recommend reading through them, especially the FAQs, and watching the videos, but information may still be missed or misunderstood. The overview below is designed to give you the big picture and some of the specifics to help you understand what’s required and to make better use of the DOR information.
KEY COLORADO SALES TAX ISSUES:
- Multiple jurisdiction licenses required: One license covering all State-collected jurisdictions (plus up to 683 additional non-physical location branch ids may be needed) and one separate license for each applicable self-collecting “home-rule” jurisdiction
- Differing remittance places and requirements for state-collected vs. home-rule
- Differing laws on taxability, licensing, “Doing Business”/Nexus, exemptions, etc.
- Unclear Boundaries – Address verification is often needed to determine the applicable jurisdictions. Mailing address city names and zip codes are not sufficient.
- Reporting Requirements for some non-collecting out-of-state vendors
- Economic Nexus – New licensing requirement thresholds for out-of-state retailers with no physical presence in Colorado
- Change to Destination-Based sourcing. State-wide collection now required for all state-collected jurisdictions
- Home-rule jurisdictions obligation to license and collect is often triggered by very minimal physical presence, but Economic Nexus has not yet been adopted.
Grace Period:
The Department of Revenue granted an automatic Grace Period through March 31st, 2019 and then extended it through May 31st, 2019.
Note: Colorado’s Reporting Requirements are still in effect for non-collecting Out-of-State retailers, and the Colorado DOR states, “The reporting requirements for retailers that do not collect tax during the grace period will be strictly enforced.”
Licensing – Who to Pay? – State-collected vs. Home-Rule Jurisdictions:
All Colorado State sales and use tax gets reported and paid to the Colorado Department of Revenue, however Colorado has two types of local jurisdictions:
- State-collected local jurisdictions
- Home-rule jurisdictions
The DOR collects for many towns and cities, all counties except Broomfield and Denver, plus a number of special districts such as the RTD and the RTA. For a listing of which local jurisdictions are State-collected and which are home-rule see the Colorado form DR1002.
State-collected jurisdictions, as the designation implies, have chosen to have the Colorado DOR collect and administer their sales tax for them. The State also handles the audits and refund claims. The state-collected jurisdictions follow the Colorado State’s laws, rules and regulations with the exception of a being able to opt out of allowing certain exemptions also listed on the DR1002.
Note: One Colorado State sales tax license with the DOR covers licensing for all state-collected jurisdictions.
Non-physical location branch ids are extensions of the license. They are required to report sales in state-collected jurisdictions in areas where the retailer does not have a physical location. This is a significant complicating factor in properly handling Colorado sales tax!
The location jurisdiction codes listed on the Colorado DR0800 form are used to assign branch ids. For more on licensing see the DOR’s Sales Tax Licensing Account page. See more on branch ids there as well and under “How to License and Pay” further below.
Home-rule jurisdictions, also known as “self-collecting” jurisdictions, require their own licensing and establish and administer their own sales and use tax laws etc. as set forth in their municipal code, interpretations and policies.
Court cases can also impact taxability. Their code and interpretations, etc. can and usually does differ from the State and from the other home-rule jurisdictions. Interpretations can be different even if the code language is exactly the same.
For example, how do you know if a jurisdiction taxes delivery charges? Contact them directly and ask or see if taxability is noted on the sales tax page of their websites as some cities call out such common areas of difference.
Most major towns and cities in Colorado are home-rule jurisdictions. Denver and Broomfield are a variation in that they are cities and counties combined. As such, they also perform the duties of counties such as handling Business Personal Property Tax collection and audits.
A COMMON PITFALL – Colorado State exemptions are often not honored by home-rule jurisdictions!
The Colorado Manufacturing Machinery and Tools exemption, for example, is not honored by Denver and some other home-rule jurisdictions. A retailer that has an obligation to license with Denver, but fails to collect sales tax for Denver because of the State’s exemption will be subject to audit and assessment of sales tax, interest and penalties. The purchaser of untaxed items is subject to audit and assessment of Use Tax, interest and penalties.
Many have their own auditors and perform their own audits for compliance while others use contract auditors from Companies like Revenue Recovery Group. Contract auditors can invite other cities they work for to “join” in on an audit of a particular business.
Nexus or “Doing Business” in Colorado:
The Colorado DOR’s new rules added an “Economic Nexus” requirement ($100,000 or 200 transactions) to the typical physical presence nexus standards.
Out-of-State Retailers with Economic Nexus
State-wide collection for all state-collected jurisdictions is now required.
Who Must Apply?: – Per the DOR:
“An out-of-state retailer must apply for a Colorado Sales Tax License and collect Colorado sales tax if, in either the previous or current calendar year the retailer has:
- $100,000 or more of gross sales or services delivered in Colorado, including exempt sales; or
- 200 or more transactions selling tangible personal property or services delivered in Colorado
Qualifying out-of-state retailers must apply for a state of Colorado Sales Tax License by Nov. 30” (2018).
In-State Retailers
If a business is in Colorado, state-wide collection for all state-collected jurisdictions is now required. Out-of-state vendors with Economic Nexus are now under the same state-wide collection.
Home-rule cities commonly consider more than one delivery into their city within 12 months as “doing business” and thus triggering a registration and collection obligation. This is a very low threshold! Some jurisdictions like Breckenridge and Silverthorne have more stringent requirements such that tax is to be collected and remitted on the first delivery into their jurisdiction. They do not have a corresponding Use Tax so they must get sales tax from the retailer.
Other traditional physical presence activities such as soliciting, installing, etc. are also triggers. Radio or print advertising targeting residents or businesses in a home-rule jurisdiction may also be considered as “doing business” and trigger an obligation to license and collect sales tax.
How to License and Pay?
For Colorado State and all state-collected jurisdictions start here. The Non-physical location branch id requirement is very complicated and a tremendous burden! Using a software complaince company that will roll-up all non-phycical location branch ids into one Colorado State return is the ideal. For details on filing, paying, obtaining nonphysical location branch ids and related questions see the DOR’s FAQs. For additional recommendations and more on the upload spreadsheet option please see our blog: What Does The Colorado Sales Tax Upload Spreadsheet Look Like?
Some sales tax compliance providers are listed below, but this is not an endorsement of any listed providers. Colorado is extremely difficult to handle and I expect all providers have limitations on handling Colorado effectively.
Taxify (Note: Taxify is a SOVOS company making them both currently the only Colorado State-certified address database providers that are also software compliance providers)
See a more complete list published by the Sales Tax Institute
A Note About QuickBooks Online – Though QuickBooks Online is popular it may be hard to find a sales tax software compliance provider with a direct integration with the Online version. As such, I recommend using the a QuickBooks Desk-Top version and a choosing a provider with a direct integration. Alternatively, Xero is cloud based and there are direct integrations with Taxify and Avalara and likely others. Ask your accountant as they may be able to offer you a discount on QuickBooks or Xero. If for provider evaluations or if Ecommerce is big for you with high sales volume across multiple channels, I’d check out Catching Clouds for their recommendations on a best solution for your needs across all states.
Filing Colorado State returns for multiple non-physical location branch ids can be overwhelmingly difficult. There are 683 possible combinations of jurisdictions that branch ids would identify. Fortunately, returns for non-physical locations are only due if you’ve made taxable sales into a jurisdiction. A business can file one branch id return at a time through RevenueOnline, file for multiple locations through a spreadsheet upload or use a sales tax software compliance service to file the State, state-collected and home-rule jurisdiction returns.
For home-rule jurisdictions’ sales tax or businesses licensing information, use our Sales Tax Revenue Departments resources page with links to all of the home-rule cities.
Some home-rule jurisdictions require a paper or PDF application and returns. Others offer online registration and filing. MuniRevs is one common resource for filing for multiple cities online, though each jurisdiction will have their own city/town specific MuniRevs portal.
Colorado Use Tax:
What is Use Tax? When is it Due?
Use tax is due when a vendor didn’t collect sales tax or enough sales tax to cover all of the State and local jurisdictions applicable to the business’s purchase or use of the items or taxable services.
For the State and applicable state-collected jurisdictions see DOR FYI General 10 – Use Tax. The DOR does administer State and some special districts’ use tax, but you won’t find the return under your RevenueOnline account. To remit use tax to the Colorado DOR, go to RevenueOnline, but don’t login. Click File a Return, then choose Consumer Use Tax Return for online filing. Be sure to print a copy or save as a PDF and retain the Confirmation Code as you will otherwise not be able to see access the return again. It will not show up under your login account.
State-collected local jurisdiction Use Tax
The DOR does not administer use tax for state-collected cities, towns or counties. Businesses are to remit use tax directly to those jurisdictions if applicable.
Not all such jurisdictions have a use tax. Those that do can only have a limited use tax on motor vehicles or building materials. See the DR1002 for which ones have an applicable use tax. A business located in such a jurisdiction will often owe use tax on purchases from vendors that didn’t’ collect sales tax. Contractors doing work in the state-collected jurisdictions also commonly have use tax requirements in the various state-collected jurisdictions.
What if you’ve been handling it incorrectly?
You’re not alone! Handling sales and use tax in Colorado is complicated. Many businesses, whether large or small, ins-state or out-of-state, well-established or new, just don’t get things right. We can help.
Voluntary Disclosure Agreements are one good way to limit your prior liabilities if collection or remittance hasn’t been handled properly.
Other Common Problematic Areas:
Mixed Transaction Invoices
Combining the sale of taxable products or services with non-taxable labor will result in the entire transaction being deemed as taxable.
Delivery Charges
Delivery charges are not taxable by the State and state-collected jurisdictions if they are separately stated and separable; however, many home-rule jurisdictions do tax delivery charges. See the DOR’s Sales Tax Quick Answers
Contractors
Contractors and subcontractors have an especially difficult time. Some state-collected and home-rule jurisdictions collect a Use Tax deposit with a building permit. Others such as Denver, do not.
If a use tax deposit is paid up front, it is generally calculated on 50% +/- of the project estimate. A reconciliation is typically required to “true-up” after any change orders. More tax may be owed or a refund may be due.
The General Contractor pulling the permit with tax collected is to provide the sub-contractors with a copy showing tax was paid. The permit is to be provided to the vendors to exempt materials purchases from city, and in some cases county sales tax (when a city collects county sales tax as part of the permitting process).
Contractors are often considered the end-user so a job for an exempt non-profit or even government entity isn’t exempted by some home-rule jurisdictions. For example, a contractor performing work for the City and County of Denver is not exempted from city or county sales tax.
The DOR may issue an exemption to a contractor for work on a project exempted by the State. For State-collected jurisdictions see Sales FYI 6 Contractors and Retailer-Contractors – Definitions and Sales Tax Requirements 04-18
For home-rule jurisdictions, check with the specific town or city here.
An Equipment Declaration may also be required. Note: If you bring equipment into a home-rule jurisdiction without having paid an equivalent sales or use tax to another town or city, you may owe use tax to the town or city where you are performing the work!
Lump Sum vs. Time and Material?
Construction or just sale of Tangible Personal Property with Installation?
Will a jurisdiction deem you as a contractor? Roofing, siding, flooring, kitchen cabinets, etc. are problematic areas where billing lump-sum may be costly. If a contractor bills on a lump-sum contract basis, but the work is deemed as a sale with installation rather than construction, tax will be due on the entire invoice amount. Mixing taxable materials with non-taxable labor results in a mixed transaction and makes it all taxable.
Additional Questions?
We cannot cover all related sales and use tax topic in the scope of this post. The information provided herein is designed to highlight the primary issues and to give you quick access to and supplement the information from the Colorado Department of Revenue and home-rule jurisdiction cities and towns. Please review our website or Contact Us directly if you have further questions or need help resolving sales and use tax issues.
Disclaimer
The conclusions and recommendations contained herein are based on tax authorities which are subject to change and/or varying interpretation. This information is provided as a courtesy and cannot be considered complete or comprehensive. Sales Tax Colorado LLC accepts no liability for reliance upon such information. Check with the relevant taxing authority for specific taxability determination, etc.