Colorado’s New Tax Bill to Simplify Sales and Use Tax Collection
Colorado’s HB19-1240 was introduced on March 12, 2019 as a means to simplify sales and use tax collection in relation to the economic nexus rules that went into effect late last year. The bill is currently under consideration but has target dates starting this summer and wide support in Colorado’s legislature, indicating it is likely to pass.
In addition to more carefully defining economic nexus for out of state sellers, the bill would introduce marketplace facilitator rules, repeal some obsolete statutes related to out-of-state sellers and redefine sourcing rules while introducing new exemptions.
What HB19-1240 Proposes
Colorado already has an economic nexus law that went into effect on December 1, 2018, but a grace period was quickly enacted for businesses to March 31, and then updated to May 31, 2019. That said, the grace period only applies to collecting and remitting. Out of state sellers are still required to start reporting on sales as the system is implemented.
What HB19-1240 does is address some of the many concerns that small businesses had about the original law. Because of the way sourcing was handled and the lack of centralized resources, the law was seen by many in the business community as being too burdensome. The new bill addresses this with the following changes:
- Sourcing Stopgap – Because of the burden that destination sourcing would put on businesses without a centralized system by which to identify local and county taxing jurisdictions, sourcing rules will be codified. This will allow smaller businesses to use the business location until such a system is implemented. This is expected to be a temporary provision as Colorado’s Department of Revenue works to build an online geographic information system.
- Marketplace Facilitators – As in the case of many states enacting new economic nexus laws, Colorado’s new regulations will require marketplace facilitators to collect and remit sales tax on behalf of third-party sellers on their platforms. This applies to physical goods, commodities and services that are subject to sales tax in Colorado. This also means the retailers on these sites won’t be required to obtain the licensing as long as their sales are through an eligible marketplace facilitator.
- Repealing Old Statutes – There are currently references in older laws and regulations about the expectations for remote sellers that either no longer apply or will no longer apply after HB19-1240 passes. These will be repealed and simplify the language around who has to collect and remit sales tax and how they will be expected to do so.
The Next Steps for Colorado Sales Tax
While out of state retailers have until June 1 before they are required to start collecting and remitting sales tax in Colorado, HB19-1240 is expected to further extend some of the protections provided to smaller retailers in particular. From sourcing concerns to marketplace facilitator support and removal of older, confusing laws, the process will make it easier in general for businesses to comply when the laws go fully into effect.