If you are a “small” Colorado retailer, big changes to Colorado sales tax compliance are coming. Effective July 1, 2021, Colorado is moving all businesses to destination-based sourcing rules for the collection and remittance of Colorado and local sales tax. This includes small business with sales under the $100,000 threshold that Colorado previously exempted. Until now, these businesses could base sales tax collections on the location from which the sale was made. Now, the sales tax is collected based on where in Colorado the product is delivered.
With over 400 separate local taxing jurisdictions, the complexity will be a burden to many small businesses in Colorado. Calculating the different rates based on ship-to location, tracking the shipments and the administration of possibly filing in over 70 different localities can be daunting.
There are several software solutions that can help automate the process such as Avalara and TaxJar. However, since fees are based on the number of filings, the cost can add up quickly. For example, the cost for Avalara to file each state and local return starts at $54. With this example, if you had a single transaction in 10 of these separate filing locations, you could be looking at over $500/month just to file the sales tax returns.
Fortunately, Colorado has developed a new reporting system called the Sales & Use Tax System (SUTS) to help streamline the reporting of the various entities. Once you signup with SUTS, you can populate your sales tax data by jurisdiction into an excel worksheet and upload it using the SUTS system. This will assist with 51 of the 70 separate self-collecting cities in Colorado. As of May 4, 2021, the remaining cities were either implementing or evaluating the system.
Colorado has provided instructional videos on the new SUTS system. They can be found at this link.
You still need to have an accurate method of charging sales tax in the first place. Certain e-commerce vendors such as Shopify will be able to handle the calculation of the data, down to the city level. But you may need to register in any new localities for which you will need to file. And if the city is not on SUTS, you will need to login to each city’s website to file and pay the sales tax return.
Clearly, Colorado sales tax compliance is getting much more difficult for retailers in the state. Let us know if you need assistance or comment below if you have general questions.