Sales & Use Tax Blog

Colorado Sales Tax Compliance a Major Concern for Small Retailers

Colorado sales tax compliance is among the most challenging in the U.S. because of the existence of “home-rule” taxing jurisdictions.  Home-rule taxing jurisdictions collect and enforce sales tax on their own outside the scope of the Colorado Department of Revenue.  This makes it cumbersome and difficult for taxpayers trying to comply with local Colorado sales tax compliance requirements because doing so for each jurisdiction varies.

Under Colorado Senate Bill 6, which signed by the Governor Jared Polis on April 12, 2019, home-rule jurisdictions are encouraged, but not required to be included in the Colorado Department of Revenue’s one-stop portal for sales tax reporting and collection.  Some representatives and officials from home-rule jurisdictions have expressed concern about the viability and effectiveness of a one-stop portal as well as having the ability and authority to audit taxpayer records.  Retailers, consumers and politicians alike would all benefit from the simplicity the one-stop portal would provide, but until it has been developed all these parties have more questions than answers.

Colorado, like most U.S. states, operates on destination-based sales tax law.  That means that the sales tax that should be added to any taxable transaction is determined by the destination of the shipment.  For retailers exclusively making sales from a fixed, physical location this is simple – it is the location of their brick and mortar storefront.  For online retail sales, Colorado sales tax compliance is more complicated.  In an online retail sale, this means that the retailer must determine the appropriate tax rate as well as the jurisdictions to which that sales tax revenue must be distributed.

A number of small business owners have admitted to struggling with how best to deal with Colorado sales tax compliance requirements at the local, home-rule level.  Some have decided not to sell their products in to home-rule cities.  That not only hurts the small business’ ability to grow, but also robs loyal customers located in these home-rule jurisdictions the opportunity to buy products they truly want.  Other small business owners have decided intentionally not to comply with sales tax reporting duties in home-rule jurisdictions and instead to increase the amount set aside to settle future sales tax audits from these home-rule cities.  Neither solution is ideal, but it is the choice facing a number of small businesses making online retail sales in Colorado.  This will be the case until the one-stop portal for Colorado sales tax compliance is not only up and running, but also proves to the home-rule jurisdictions that it is a viable solution.

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