Colorado Economic Nexus Law Change for Remote Sellers

Alex Forbes
May 1, 2019

In December 2018, the state of Colorado made substantial changes impacting the sales tax collection and remittance requirements imposed on both in-state and remote sellers. The state extended a grace period for companies to comply with these requirements through May 31, 2019. Beginning June 1, 2019, under the new rules, most companies will be required to collect Colorado state sales tax and any local sales tax for state-administered localities. The rate will be determined based on the location of your Colorado customer. These rules specifically do not impact any obligation sellers may have in self-administered localities.

New Sales Tax Obligation for Colorado Remote Sellers

Like many other states, subsequent to the South Dakota v. Wayfair Supreme Court decision, Colorado enacted rules which sought to compel sales tax collection and remittance responsibility on sellers based on their economic presence in Colorado, regardless of whether they may be physically located there. These obligations fall on any organization that, in the previous or current calendar year, has:  

  • $100,000 or more of gross sales or services delivered in Colorado, including exempt sales.

Sales Tax Obligation for Colorado In-State Sellers

As a reminder to those who subscribe to our regulatory feed, effective June 1, 2019, the state of Colorado will require in-state sellers to collect and remit state sales tax and any applicable state-administered local taxes based on the jurisdiction’s tax rate at the point of delivery. This rule is a significant departure from the rule currently in effect, which applies tax at the point of delivery but specifies that sellers are only required to collect local tax for those state-administered locations where they have a physical presence.

While this rule change is not expressly connected to the new rule for remote sellers as described above, it is practically connected as the rules work together in a way that creates identical collection responsibilities for remote and in-state sellers – at least as they relate to state-administered jurisdictions.

Colorado Sales Tax Collection Challenges

Colorado assesses a state-level tax and over 220 local jurisdictions also assess sales taxes, some of which are state-administered and others collected by local entities. This local tax structure creates a complex web of overlapping tax jurisdictions, making it very difficult for businesses to know exactly which taxes apply at a given address.

Sovos Global Tax Determination Colorado DOR Certified

What is Certification?

The Colorado Department of Revenue (DOR) certified the Sovos address database, part of the Sovos Global Tax Determination solution, in the summer of 2016 and re-certified Sovos in September 2018 for another three years. Sovos was the first business to receive this certification and the Sovos database continues to be certified as accurate.

How did Sovos become certified by the Colorado Department of Revenue?

In November 2015, the Colorado Office of the State Auditor released a Performance Audit Report of the Department of Revenue for local sales taxes, finding that the department could improve its performance by “obtaining a geographic-information-system (GIS)-based mapping application…that is capable of plotting business site addresses and determining applicable sales tax jurisdiction and corresponding GenTax location codes.”

  • The Department of Revenue tapped into the state’s strong software and technology industry to create this mapping application at no cost to the state.
  • Colorado law allows the state to certify the accuracy of third-party vendors’ databases that are used to determine the tax rates and boundaries of taxing jurisdictions.
  • Sovos sought and received this certification after rigorous testing by the DOR.

Sovos Client Benefits of Colorado DOR Certification

Companies operating in Colorado are able to direct their tax resources to drive business growth initiatives rather than spending a lot of time and money staying compliant with the state’s varied sales and use tax laws. This certification (in conjunction with the Sovos comprehensive approach to maintaining accurate state and local rates across the country) assures clients that sales and use tax rates are determined correctly on every transaction in the state.

  • Sovos clients using the Global Tax Determination SaaS solution for Colorado transactions cannot be held liable for improper jurisdictional assignment in the specified Colorado locations.
  • This protection extends to state-level tax rates, state-administered localities, and certain participating “home rule” jurisdictions.
  • Simply stated, the Sovos address lookup is deemed to be correct.

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Author

Alex Forbes

Alex Forbes is Senior Manager, Content Marketing, at Sovos. When not helping readers navigate their tax-related digital business transformation journeys, he enjoys day tripping around New England with his wife.
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