The Colorado Department of Revenue recently issued updated guidance extending the grace period for implementing the economic nexus and sales tax sourcing changes the Department is pursuing as a result of Wayfair. Recall, the Department had proposed emergency regulations to establish an economic nexus standard and certain changes in the sales tax sourcing rules. These changes were originally scheduled to be effective December 1, 2018. The economic nexus standard required remote sellers with greater than $100,000 in receipts from Colorado sales or more than 200 transactions in Colorado to collect certain sales into the state. The sourcing changes required all sellers (both in-state and out-of-state) to collect local sales taxes on all sales delivered into roughly 250 state-administered local tax jurisdictions (cities, counties and special districts), rather than collecting local sales tax only on sales delivered into local jurisdictions in which the seller had a physical presence.
The sourcing changes can increase significantly the collection requirements of all types of sellers. As a result of concerns regarding the ability of in-state and out-of-state sellers to comply with the December 1 deadline, the Department had previously announced a “grace period” until March 31, 2019 for sellers to come into compliance. The most recent guidance, released December 6, 2018, extends the grace period through May 31, 2019. The extended period applies to all retailers (in-state and out-of-state) and is intended to provide sellers with the time to make any required systems changes to comply with their new sales tax obligations. All retailers will be automatically granted a waiver from compliance with the destination-sourcing changes and economic nexus changes until May 31, 2019. With regard to out-of-state retailers, the guidance provides that retailers not required to collect sales tax during the grace period will still be required to comply with Colorado’s use tax reporting requirements, which the Department notes will be strictly enforced. In the news release announcing the extension, the Department observed that the additional time will allow time for the Legislature to adopt measure to “streamline” the local collection process if it so desires.
As a reminder, the Department has provided retailers with a list of five databases from which to choose to determine the appropriate location of a sale, all of which are “hold-harmless.” Taxpayers who use these databases will be able to determine the appropriate location of a sale (and presumably the correct tax rate) based on the delivery address. Sellers using a certified data base are not liable for sales taxes otherwise owed to Colorado and its state-collected municipalities, counties and special districts should a database incorrectly designate the location of a taxable sale or service. Questions in connection with any of these changes, can be directed to Steve Metz at (303) 382-7177.