By Ryan Sanger – Tax Partner
Since the Supreme Court’s decision in the South Dakota v Wayfair case was handed down in June, 2018; businesses both in and out of Colorado have questioned how Colorado sales tax laws will change. With the passing of HB19-1240, effective June 1, 2019, we finally have our answer. The new law establishes economic nexus as well as destination sourcing for all in and out of state retailers. Here’s what every business owner needs to know:
Economic nexus according to HB19-240 is relatively simple. For all retailers, economic nexus is established once a business has exceeded $100,000 in sales during the prior calendar year or 90 days after exceeding $100,000 in the current sales year regardless of delivery methods or physical location of the company.
Destination sourcing will have the most impact on those business owners who use online sales models or conduct their business from outside of Colorado. For goods and services purchased and received at a retail location, the tax rate for the store’s location applies. However, if the purchase is delivered within the state of Colorado, sales tax must be collected and remitted based on the jurisdiction’s tax rate at the point of delivery. In order to facilitate destination sourcing, HB19-1240 will require the Department of Revenue to create and implement an online Global Information System (GIS) which will allow businesses to look up the specific sales tax rates for an individual address. Until the Department of Revenue has put the GIS into effect, small businesses whose sales do not exceed $100,000 in the prior year will be exempt from collecting sales tax.
Not only does HB19-1240 establish economic nexus and destination sourcing for direct to consumer retailers, it also details how sales tax should be collected in situations where sales between a buyer and seller are facilitated by a 3rd party. Marketplace facilitators, such as Amazon, Ebay, Etsy, etc., will now be treated as the seller and will be required to collect and remit sales tax for all sales to Colorado consumers. However, in the event that the businesses utilizing the third-party marketplace does not provide correct information to the facilitator regarding the amount of tax to collect, the business is liable for the sales tax that was left uncollected, as well as applicable penalties and interest.
As many of you are aware of, Colorado has a complex sales and use structure due to the existence of Home Rule cities and counties. Please note that HB19-240, only relates to the State of Colorado and the cities and counties collected by Colorado. We are still awaiting guidance from the Home Rule cities and counties on how they will implement Wayfair and/or HB19-240.
As the June 1, 2019 effective date quickly approaches, business owners may find themselves questioning how to move forward and what HB19-1240 means for them. I would be more than happy to discuss your individual sales tax situation with you. I can be reached at firstname.lastname@example.org or 970. 352.1700.