Colorado recently announced a major change in the sales tax collection rules for retailers in the state of Colorado. Under current rules, a Colorado retailer must collect sales tax based on any physical locations of the retailer. For example, if you had a single location from where you shipped product to customers all over the state of Colorado, you had to work about charging sales tax based only on your single location.
However, there are major changes coming which will result in much more complicated collection and reporting requirements. Effective December 1, 2018 (however, see the grace period information below), Colorado will begin requiring retailers to calculate, collect and remit state and local sales taxes based on where your product is shipped. Colorado has 683 sales tax jurisdictions, so this could make your bookkeeping and billing much more complicated.
The new rules state that sales tax must be collected and remitted based on the jurisdiction’s tax rate at the point of delivery for the taxable good when taxable goods are delivered to a Colorado address outside the retailer’s jurisdiction. This includes any applicable state-administered local and special district taxes. For example, if a retailer delivers taxable goods to a customer’s address, sales tax must now be collected at the rate effective for the customer’s address, not the taxes that are in common between the customer’s address and the seller’s location.
As a result of these changes, you will need to go the Colorado Revenue Online website and register every location you ship to as a non-physical address, track their total sales tax rates (they may change from time to time), and have the ability in your software to properly calculate the sales tax for each shipment to your Colorado buyers.
If you do not deliver products to another address, nothing changes for you. For example, if you operate a retail store and all your sales are from customers who visit and purchase from your store, your sales tax collections are based only on your store’s location and you do not need to change your sales tax calculation and collection processes.
Colorado is offering a grace period through March 31, 2019 to comply with the new changes. According to the Colorado Department of Revenue website, you will be granted a waiver automatically until March 31, 2019. You do not need to apply for the waiver.
In the meantime, we recommend you start on this process as soon as possible. If you have only a few Colorado locations to which you ship, you can probably handle this process manually. But if there are many, you may want to consider a service such as TaxJar or Avalara which can help automate this process quite a bit. We are also working with some of our clients on these changes and we may be able to assist you as well.
Colorado has free live webinars and an FAQ page at this link if you need additional information.