Colorado has different sales tax rates in different cities and towns. When a Colorado business needs to collect sales tax from a remote customer, does it use the sales tax rate for the town it ships to, or for its own location?
Since 2019, large retailers have been required to use the shipping address to determine the sales tax to collect. This is known as "destination based sourcing." But small businesses - those with under $100,000 in retail sales - have been able to use their own location. That was supposed to change today. But on June 15ththe Colorado General Assembly adopted SB21-282, extending the small business exception for destination-based sourcing requirements to February 1, 2022.
As part of the move to destination-based sourcing, and a push for sales tax simplification in the state, the Colorado Department of Revenue continues their rollout of the Sales and Use Tax System (SUTS). Historically, Colorado has had a decentralized sales tax collection regime, as home-rule jurisdictions were authorized to administer their own sales and use taxes, in addition to the state administered taxes. Although adopting the system is not mandatory for home-rule jurisdictions, 51 of the 72 Home Rule Municipalities have agreed and signed on to utilize SUTS. The Colorado Department of Revenue has hopes that within three years every taxing jurisdiction will agree to utilize the platform.
The push for a centralized website started in early 2019 when Governor Jared Polis signed Senate Bill 19-006. Since then the Colorado Department of Revenue has been working with the Office of Information Technology to create the one-stop sales and use tax website. Some capabilities of the website include a single uniform remittance form, and a taxability and exemption matrix. The site also works with the Geographic Information System to help determine the correct sales and use tax rates given a specific address and item of sale. New and existing Colorado filers are currently allowed to register and link existing accounts on the SUTS website. For businesses not registered to collect and remit local Colorado taxes, the SUTS website should be considered when coming into compliance with Colorado sales and use tax.
As part of the move to a centralized website and to simplify sales tax collection, local jurisdictions have been incentivized to sign on to SUTS so that they can adopt the Colorado Municipal League Model Ordinance on economic nexus and marketplace facilitators. The ordinance allows home-rule jurisdictions to collect sales tax from remote sellers with over $100,000 of Colorado sales (not $100,000 to that jurisdiction). The Colorado Municipal League has suggested to its members that adopting the ordinance without also participating in SUTS could invite Commerce Clause legal challenges as an undue burden on interstate commerce.
The move to a centralized collection system is a welcome change in Colorado, but sales tax compliance in the state still remains complex, as home-rule jurisdictions can still conduct their own audits and can have their own rules regarding taxability of products and services. Not all jurisdictions have signed on to the platform or adopted the Colorado Municipal League Model Ordinance.
Please contact your Eide Bailly tax pro or the Eide Bailly SALT team if you have questions.
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