Over the last two years, retailers across the U.S. have needed to adjust to the widespread implementation of economic nexus. As of today, only two states with a general sales tax have yet to implement it. However, a handful of states add an additional layer of complexity. These states, known as home rule states, create a tax burden that can be overwhelming. Colorado is included in this number.
However, much to the relief of retailers, Colorado is now looking to simplify local sales tax collection for remote sellers within the state.
What Makes Colorado So Complex?
A home rule state gives local government entities, including municipalities and counties, the authority to establish and levy their own sales taxes, separate from state sales tax regulations. Much like economic nexus laws, tax regulations vary wildly between home rule jurisdictions, even within the same state.
What this means, is that an out-of-state retailer who makes sales into Colorado will need to individually contact each local tax authority to determine whether they are obligated to collect and remit sales tax on their products, and what rate they will need to collect at. Then, they must file a separate return with each tax authority.
It can be a horrific situation for smaller retailers that trigger economic nexus within Colorado but do not have large accounting departments.
What Is Colorado Doing To Reduce The Burden?
In 2017, lawmakers in Colorado established the Sales and Use Tax Simplification Task Force. As a group, they study “sales and use tax simplification between the state and local governments, including home rule municipalities … to adopt innovative revenue-neutral solutions that do not require constitutional amendments or voter approval.”
Two solutions have emerged as a result. The first, the Sales & Use Tax System (SUTS), a statewide portal for tax collection implemented by the Department of Revenue (DOR), launched earlier this year. So far, 28 percent of home rule jurisdictions have started the process of securing signatures for the agreement, and 38 percent of the jurisdictions have signed the agreement and are currently onboarding. An additional 32 percent are currently reviewing and evaluating the system, while the final 1 percent have delayed reviewing until they are fully staffed.
The second solution, a model ordinance for home rule municipalities developed by the Colorado Municipal League and the DOR, was created in early 2020. Home rule municipalities that have joined SUTS are also encouraged to adopt the model ordinance. On the flip side, those municipalities that do not join SUTS are asked not to adopt the language on economic nexus and move forward with voluntary compliance. This is because, “The risk of a lawsuit under the United States Commerce Clause if you were to enforce economic nexus without the single point of remittance is high.”
A number of municipalities, including Silverthorne, Pueblo, Carbondale and Gunnison have already adopted the model ordinance.
These two solutions working in tandem should simplify sales tax compliance for remote sellers to a reasonable degree, especially as municipalities continue to adopt them.
Do You Have Questions About Taxation in Colorado?
If you have questions about your tax liability in Colorado, or any other state, please contact us today. We’re happy to clarify any multi-state tax issues you’re trying to navigate.
