27 Jun Colorado Sales Tax Nexus & Destination Sourcing Rules
Colorado Sales Tax Nexus & Destination Sourcing Rules
The Colorado General Assembly adopted SB21-282, which extends the small business exception to destination sourcing requirements. This exception applies only to businesses with less than $100,000 in retail sales.
As of February, 1st 2022 however, all retailers must apply the destination sourcing rules when calculating, collecting and remitting Colorado sales tax. Basically, sales tax is calculated based on the buyer’s address when the taxable product (or service) is delivered and could involve multiple home rule taxing municipalities as well the Colorado Department of Revenue.
It is also used when a product or service has a lease/rental agreement with periodic recurring payments. The Department does not have the authority to grant exceptions to these rules.
Before getting into the sourcing rules – do you have a filing requirement?
Bottom line – If your business sells, rents or leases tangible personal property, you must get a Colorado Sales Tax License and file a Colorado sales tax return regardless of where your business is physically located.
Colorado generally does not impose a state sales tax on services.
- However, some Colorado home-rule cities (that collect their own local sales tax) charge a sales tax on certain services.
Local and special district sales tax due is generally based on the rates that apply for the destination address of the taxable good or service purchased.
- The Colorado Sales/Use Tax Rates Form (DR 1002) lists taxation jurisdictions that are collected by the state and the jurisdictions that are self-collecting, along with their contact information.
- Some municipalities have elected a home rule designation which, among other features, gives them greater autonomy and control over the taxes within their jurisdictions.
- Home rule jurisdictions, however, may choose to have the Department collect their taxes under certain conditions.
- The home rule jurisdictions that make this election are considered state-administered jurisdictions.
- Home rule jurisdictions that do not make this election are considered self-collecting jurisdictions.
- A list of self-collecting jurisdictions can be found in DR1002.
- Some local jurisdictions may have a separate requirement for retailers doing business in their jurisdictions to register with them for a business license, but that has no impact on the administration of sales tax.
- You must contact self-collecting jurisdictions directly for more information about their sales and use tax policies and procedures.
- This video is also helpful in finding information for home rule municipalities.
- There are two counties that self-collect and 72 municipalities that self-collect.
- There are certified address database providersthat have taxing information by address.
- These provider services have been certified by the Department as accurate.
- Taxpayers who use these certified databases will not be liable for sales and use tax otherwise owed to the State of Colorado and state-collected municipalities, counties and special districts if the database incorrectly designates the jurisdictions to which tax is owed on the sale, storage, use or consumption of taxable tangible personal property or services.
- This is the “hold harmless” provision in Colorado statute.
- The Colorado Department of Revenue collects sales taxes for the State, all statutory jurisdictions (those that have not elected to go to home rule and to self collect), plus the sales taxes for all special districts that assess a sales tax.
- State-collected jurisdictions include all special districts, 50 counties and approximately 150 municipalities, including 24 home-rule municipalities.
- Any self-collecting jurisdiction may opt-in to have the Colorado Department of Revenue administer, collect and audit sales tax for it.
- In order to be state-collected the jurisdiction must conform to a prescribed list of exemption elections and conform to the State’s tax base.
- There may be local ordinance changes required, or other conforming actions necessary before the self-collected jurisdiction can qualify for the Colorado Department of Revenue to administer, collect and audit as a state-collected jurisdiction.
- The Colorado Department of Revenue does not require retailers to register separately with state-collected local jurisdictions to collect local sales taxes.
- The Colorado Department of Revenue does not require any local registration to collect state-collected local jurisdiction sales taxes.
Filing Frequency & Due Dates
Filing frequency is determined by the amount of sales tax collected monthly.
- $15 or less per month: Sales tax returns may be filed annually. Annual returns are due January 20.
- Under $300 per month: Sales tax returns may be filed quarterly.
- Due dates:
- January – March: due April 20
- April – June: due July 20
- July – September: due October 20
- October – December: due January 20
- Due dates:
- $300 or more per month: sales tax returns must be filed monthly. Monthly returns are due the 20th day of month following reporting period.
- Businesses that pay more than $75,000 per year in state sales tax must pay by Electronic Funds Transfer (EFT). EFT is due the 20th day of month following reporting period.
- Wholesale businesses with a sales tax liability of $180 per year or less can file annually.
IF you have a filing obligation – BE PAINFULLY AWARE –
- You must file a sales tax return every filing period, even if no sales are made and no tax has been collected.
- Failure to file will result in the Department filing a return on your behalf and estimating the amount to be billed.
- These estimated returns will be due and payable until an actual return is filed.
- If you no longer need your sales tax account (license), notify the Colorado Department of Revenue as soon as possible.
Colorado Sales Tax Filing Tips
- Use the correct version of the Retail Sales Tax Return (DR 0100).
- Do not use old versions of the DR 0100. For the correct version, go to the Sales & Use Tax Forms web page.
- Report gross sales per site location.
- Each location has its own Gross Sales and Services amount, so each location should be filed on a separate return. Also, the amount of deductions and exemptions will only apply for that particular location.
- Net Sales should be the same in each applicable column.
- Claim the Service Fee (Vendor Fee).
- A service fee (vendor fee)is calculated on the DR 0100 and is deducted from the Total Amount Owed. Though it is called a fee, it is a benefit to the business for timely filed and paid returns.
- Enter site numbers on Retail Sales Tax Returns.
- Each DR 0100 should have a site number listed (for example, 00000001-0010). This helps the Department identify and properly allocate local jurisdiction taxes that are paid with the return.
- Do not leave lines blank.
- Complete all applicable and required lines. If there is no amount for that line, enter 0. There must be amounts on lines 1, 3, 5, 7, 9, 12, 14, 17, and 18.
- Do not use Line 10 for Consumer Use Tax.
- Consumer Use Tax must be paid by Colorado businesses on purchases that did not include Colorado sales tax. Any tangible personal property a retailer purchased for resale, but subsequently removed from inventory for the retailer’s own use, is subject to consumer use tax. A Consumer Use Tax Return (DR 0252) is required to report and remit any consumer use tax a retailer owes.
- If you are a retailer that did not make retail sales in excess of $100,000 during the previous calendar year you must begin collecting once your retail sales into Colorado exceed $100,000 during the current calendar year.
- You have 90 days after the current-year threshold is met to register for a license.
- Collection will begin on the first of the month following registration.
General Destination Sourcing Rules
In general, a retail sale is made at the location to which it is sourced in accordance with the following rules:
- If the purchaser takes possession of the purchased property or first uses the purchased service at the seller’s business location, the sale is sourced to that business location.
- If the property or service is delivered to the purchaser at a location other than seller’s business location, the sale is sourced to the location the purchaser receives the purchased property or first uses the purchased service.
- If the purchaser requests delivery of the property or service to another recipient (i.e. the purchase is a gift), the sale is sourced to the location the recipient takes possession of the purchased property or first uses the purchased service.
If a sale cannot be sourced using the preceding rules, Section 39-26-104(3)(a), C.R.S., provides additional guidelines for sourcing retail sales based upon the seller’s records, the purchaser’s payment instrument, or the location from which the property was shipped.
Specifically the statute asserts as follows:
“…for purposes of determining where a sale of tangible personal property, commodities, or services is made, the following rules apply:
- (I) If tangible personal property, commodities, or services are received by the purchaser at a business location of the seller, the sale is sourced to that business location.
- (II) If tangible personal property, commodities, or services are not received by the purchaser at a business location of the seller, the sale is sourced to the location where receipt by the purchaser occurs, including the location indicated by instructions for delivery to the purchaser, if that location is known to the seller.
- (III) If subsections (3)(a)(I) and (3)(a)(II) of this section do not apply, the sale is sourced to the location indicated by an address for the purchaser that is available from the business records of the seller that are maintained in the ordinary course of the seller’s business, when use of this address does not constitute bad faith.
- (IV) If subsections (3)(a)(I), (3)(a)(II), and (3)(a)(III) of this section do not apply, the sale is sourced to the location indicated by an address for the purchaser obtained during the consummation of the sale, including, if no other address is available, the address of a purchaser’s payment instrument, when use of this address does not constitute bad faith; or
- (V) If subsections (3)(a)(I), (3)(a)(II), (3)(a)(III), and (3)(a)(IV) of this section do not apply, or if the seller is without sufficient information to apply the rules set forth in subsections (3)(a)(I), (3)(a)(II), (3)(a)(III), and (3)(a)(IV) of this section, the sale is sourced to the location indicated by the address from which the tangible personal property, commodity, or service was shipped.”
Clear as mud, right?
Bottom line – you will need to know how to look up Colorado Sales & Use Tax Rates by a specific address and prepare your self to have multiple taxing authorities in which you must report.
Colorado’s Geographic Information System (GIS) now allows you to look up the specific sales tax rate for an individual address. The GIS not only shows state sales tax information, but it also includes sales tax information for counties, municipalities, and special taxation districts. This system allows for a complete tax rate to be determined so the correct tax is collected from customers in real-time.
Two services are available in Revenue Online (under Additional Services) that can also help:
- View Local Sales Tax Rates: This service provides tax rates for all Colorado cities and counties
- View Business Location Rates: Licensed retailers can find rate and jurisdiction code information for their registered location(s) using this service.
When you use Revenue Online to file Colorado taxes, the online form includes all the tax rates for each of your business locations. If you have more than one location, you must file each location separately in the Revenue Online service.
You may e-file for multiple locations using approved XML software or request to file by spreadsheet, both of which are uploaded in Revenue Online. See the Sales Tax Filing Information web page for more information.
- DR 1002: This document lists the sales and use tax rates for all Colorado cities, counties, and special districts. It also contains contact information for all self-collected jurisdictions. If your business is located in a self-collected jurisdiction, you must apply for a sales tax account with that city.
- DR 0800: This document provides the jurisdiction codes by county to ensure proper registration of locations for accurate filing and distribution of state-collected sales tax to local and special district tax jurisdictions.
- DR 0100: This is the Colorado Retail Sales Tax Return. Use this document if you are unable to file electronically through Revenue Online.
For information on how to use the DR 0100 form, visit the Sales & Use Tax Filing Information section of the website.
Fear Not, Colorado offers some wonderful sales and use tax guidance:
- Agriculture Industry
- Aircraft (& Parts) Industry
- Beetle Wood Products
- Bingo Equipment – Sales
- Charitable Organizations
- Coins and Precious Metals
- Computer Software
- Construction Contractors
- Dining Establishments
- Direct Pay Permit for Colorado Sales Tax
- E911 Surcharge and TRS Surcharges
- Food and Related Items
- Gasoline and Special Fuels
- Government Purchases Exemptions
- Leased Departments within Stores
- Low-Emitting Heavy Vehicles
- Machinery and Tools Used in Manufacturing
- Marketplace Facilitators
- Medicine and Medical Equipment
- Motor Vehicles
- Prefabricated Housing
- Refund for Vehicles Used in Interstate Commerce
- Renewable Energy Components
- Residential Energy Usage
- Rooms and Accommodations
- Sales by Schools and School Organizations
- Sales/Use Tax Exemption for Affordable Housing Projects
- Telephone & Telecommunications
- Telephone charges by Hotels/Motels
- Vending Machines
Not to add insult to injury but these sourcing rules do not apply to leased property. Bottom Line –
- Under certain circumstances, a lease of tangible personal property in Colorado is treated as a sale and the lessor must collect sales tax from the lessee on all payments made pursuant to the lease.
- In other cases, the lessor is required to pay any applicable state and local sales and/or use taxes on the lessor’s acquisition of the property, but is not required to collect sales tax on the lease payments.
- The taxation of leased property depends generally on the duration of the lease term and whether the lessor has received permission from the Department to collect sales taxes on leases of 36 months or less.
- A contract pursuant to which a contractor performs a service for a customer using equipment owned by the contractor is not considered a lease of the equipment by the customer and is not subject to sales tax requirements.
- The duration of the lease term partially determines the tax treatment of the lease. Different rules apply depending on whether the lease term is more or less than 36 months.
- If a lease is for a term of greater than 36 months, the lessor must collect all state and state-administered local sales taxes from the lessee on all payments made pursuant to the lease.
- The lessor’s acquisition of the property is considered a wholesale sale and is not subject to sales or use tax.
- If the lease term is 36 months or less, the lessor must pay sales and/or use taxes, as applicable, on the full purchase price the lessor paid for the acquisition of the property, unless the lessor has received permission from the Department to collect all applicable state and state-administered local sales taxes on all payments made by the lessee pursuant to the lease.
- The lessor may request such permission from the Department by filing the Permit to Collect Sales Tax on The Rental or Lease Basis (DR 0440).
- The permission to collect sales tax on lease payments, if granted by the Department, obligates the lessor to collect sales tax on all leases made by the lessor for terms of 36 months or less.
- For any motor vehicle lease, the lessor or motor vehicle dealer from whom the lessor acquired the vehicle must complete a Statement of Sales Taxes Paid on Motor Vehicle Leases (DR 0026). The lessor or dealer must submit a copy of the completed DR 0026 along with the titling paperwork to the county clerk in the county in which the vehicle will be registered.
- Lease payments are subject to Colorado sales tax if they are sourced to Colorado under Colorado law. These sourcing rules also determine the applicability of any state-administered local sales taxes.
- In general, periodic lease payments are sourced to the primary property location for each period covered by the payment. The primary property location is generally the address for the property provided by the lessee to the lessor.
- If the leased property is not a motor vehicle, trailer, semi-trailer, or aircraft, the first periodic payment is sourced to the location at which the lessee takes possession of the leased property, either at the lessor’s business location or at another location.
- For a lease or rental that does not require recurring periodic payments, the payment is sourced to the location at which the lessee takes possession of the leased property, either at the lessor’s business location or at another location.
- The preceding sourcing rules do not generally apply to trains, trucks, buses, or aircraft used to transport people or property in interstate commerce.
- See 39-26-104(3)(b), C.R.S., for additional information about sourcing lease payments.
Wayfair Decision Overview
- On June 21, 2018, the U.S. Supreme Court issued its decision in South Dakota v. Wayfair.
- In a 5-4 decision, the Court ruled in favor of South Dakota and overruled Quill Corp. v. North Dakota and National Bellas Hess, Inc. v. Illinois Department of Revenue.
- The Court concluded that “the physical presence rule of Quill is unsound and incorrect.”
- To replace the physical presence rule of Quill and National Bellas Hess, the Court held that substantial nexus is established – “When the taxpayer [or collector] ‘avails itself of the substantial privilege of carrying on business’ in” a state.
- Wayfair’s economic and virtual contacts with South Dakota was measured by more than $100,000 of sales or 200 separate sales transactions satisfied Wayfair’s substantial nexus definition.
Along with many other states including Alabama, California, Connecticut, Hawaii, Michigan, New York, Ohio, Oregon, Pennsylvania, and Tennessee, Colorado adopted factor-presence nexus statutes for corporate income & sales tax purposes. Factors include physical presence like offices, warehouses, & employees.
Prior to the Wayfair Supreme Court decision many states also enacted statutes to impose sales/use tax collection responsibilities based on:
- Affiliate nexus where a remote seller with affiliated ownership with an entity that has an in-state physical presence.
- Click-through nexus where a remote seller enters into an agreement with a resident of a state in which the resident directly or indirectly refers potential customers to the retailer for a commission or other consideration.
- “Cookie” nexus where a remote seller is treated as having physical presence with a state based on the “presence” of “cookies” on customers’ or prospective customers’ computers.
- Inventory nexus where a remote seller is treated as having physical presence with a state based on it having inventory in a fulfillment center.
As a result of the Wayfair decision, a ‘physical presence’ is no longer required for substantial nexus under the Commerce Clause and now 45 states including Colorado have Wayfair related economic nexus standard for sales tax.
Non-US Entities Selling into Colorado
In Colorado please be aware that economic nexus applies to non-U.S. entities as U.S. tax treaties generally do not apply to state taxes unless the non-U.S. entity can prove discrimination.
Here is a good video on how to register in Revenue Online for Out-of-State Retailers
Marketplace Facilitator Rules
- As of January 2021, most states including Colorado have adopted marketplace facilitators rules. The only states that have not are Florida, Kansas, & Missouri.
- Generally, these rules are the same as the remote seller economic nexus thresholds in each state but there can be variations in effective dates!
- A ‘Marketplace’ is typically defined as a physical or electronic place, platform, forum, store, website, catalog, or other sales software application where products are offered for sale.
- A ‘Marketplace Facilitator’ is typically defined as the entity that owns and operates the marketplace, and directly or indirectly processes transactions on behalf of marketplace sellers.
- Facilitators are required to charge/collect/remit sales tax on taxable transactions made through its marketplace and often considered the “retailer” under many state statutes.
- A ‘Marketplace Seller’ is typically defined as a seller, other than the marketplace facilitator/provider that sells through the marketplace.
- Obviously if a marketplace seller has nexus in a state, and it makes any taxable sales that are not through a marketplace, then it would be required to collect/remit sales tax on those transactions.
- Typically a marketplace facilitator will state in their contract terms of conditions that they will be responsible to collect taxes.
- However, if the responsibility to collect and remit taxes is not stipulated a facilitator can provide a Certification of Registered Marketplace Facilitator (DR 1290) to the marketplace seller.
Colorado’s Sales & Use Tax System (SUTS) Remittance Portal
- SUTS is the new Sales & Use Tax System from the Colorado Department of Revenue.
- The SUTS System is a one-stop portal that allows you to do all manner of tasks related to collecting and remitting sales and use tax in an easy, automated and seamless fashion.
- The system has the following capabilities:
- Accurately look up sales and use tax rates by address
- Single point of remittance and a uniform remittance form
- Taxability and exemption matrix
- Ability to calculate tax rates on items with differing tax rates in the same jurisdiction
- A record of the history of any changes
- The primary element of the SUTS System is the Remittance Portal.
- This portal allows you to file your retail sales tax returns for state, state-collected, and participating home-rule self-collecting taxation jurisdictionsin one place.
- For special event sales tax, businesses should continue to use Revenue Onlineto e-file their special event sales tax returns (DR 0098).
The following links will help you get started in your compliance journey.
- How to Apply for a New Colorado Account Number (CAN) & Register for SUTS
- How to Register a New SUTS User
- How to Add an Existing Business to Your SUTS Account
- How to Look Up Sales Tax Rates
- How to File Using an Excel Document
- How to File Using XML
- How to Make a Sales Tax Payment to Colorado Revenue
For more on Colorado Sales Tax compliance or dispute resolution concerns, contact me today. My team and I are here to serve.