New Colorado law affects all nonColorado retailers as of May 1, 2010

Marketsmith Alert

A new law in Colorado has requirements which take effect Saturday May 1 and affect all merchants/retailers who have customers in Colorado but who DO NOT have a physical presence in the state – all catalogers, online retailers, DRTV merchants, or any others who are not subject to Colorado sales tax and currently sell to Colorado residents. Those retailers/merchants will have to track purchase data for Colorado residents and submit that information to the Colorado Department of Revenue so that the State will be able to collect sales tax from the purchasers. Colorado sales tax is 2.9% on purchases.

The immediate requirement is that merchants/retailers must notify Colorado purchasers of potential tax implications of purchases from nonColorado businesses. We have reviewed all of the requirements of the actual legislation and confirmed the details with the DMA and other industry sources.

Marketsmith recommends that all affected retailers comply with the law (details given below) as of May 1, 2010:

1. Talk with your attorney for the best method for you to comply. We have provided the details of what information must be provided to your customers at the time of sale. We have included language suggested by the State of Colorado. We urge you to talk with your attorney to determine the specific language to be used.
2. You must provide notice either on the invoice or in an email confirmation sent immediately after the sale (details below).
3. If you are unable to email the purchaser or to adjust the inkjetting on your invoices to accommodate the new language, we suggest that you have stickers printed which can be applied to the invoices.

Below we have provided a synopsis of the law and its requirements. That information is followed by a rundown of current industry action and planned action.

The law affects you as a merchant if:

• You do not currently pay/collect Colorado sales tax
• You sell to customers(Colorado purchasers*) in Colorado
• You have annual total gross revenues of $100,000 or more

Requirements as of May 1, 2010:

• Provide notification for products purchased by Colorado purchasers (bill to address in Colorado) as part of the sale – either immediately before, as part of, or immediately after. The notice should appear on the invoice or an email confirmation and shall include the following:
  • The non-collecting retailer is not obligated, and does not, collect Colorado sales tax;
  • The purchase is subject to Colorado sales tax unless it is specifically exempt from taxation;
  • The purchase is not exempt merely because it is made over the Internet or by other remote means;
  • The State of Colorado requires that the taxpayer file a sales/use tax return at the end of the year reporting all of the purchases that were not taxed and pay tax on those purchases;
  • Retailers that do not collect Colorado sales tax are obligated to provide purchasers an end-of-year summary of purchases in order to assist purchasers in filing their tax report;
  • Details of how to file this return may be found at the Colorado Department of Revenue’s website, www.taxcolorado.com;

    Language suggested by Colorado to cover all of those points is:

    Although we, as the seller, are not obligated to collect Colorado sales tax, this purchase is subject to Colorado sales tax unless it is specifically exempt from taxation. This purchase is not exempt merely because it is made over the Internet or by other remote means. The State of Colorado requires that you file a sales/use tax return at the end of the year reporting all of your purchases that were not taxed and pay tax on those purchases. Retailers that do not collect Colorado sales tax, including ourselves, will provide you an end-of-year summary of your purchases to assist you in filing that report. Details of how to file this return may be found at the Colorado Department of Revenue’s website, www.taxcolorado.com. Please note that we are required by law to provide the Colorado Department of Revenue with a report of the total amount of all of your purchases from us at the end of the year.

  • The above referenced notice must be clearly legible and reasonably prominent on the invoice. The notice in (a) must be accompanied by a notice in bold typeface in a font size used by the retailer for other text on the invoice appearing immediately adjacent to the dollar total of the transaction referencing the notice in (a) and reading as follows: Please see important sales tax information.
• Track all sales to Colorado customers (with annual purchases of $250 or more) for report both to the customers and the State of Colorado
  • Send an annual report to each customer by January 31, 2011 (and each subsequent year) which details total purchases
    • Notice sent by Jan. 31 only via First-Class Mail with “Important tax document enclosed” appearing prominently on the envelope;
    • A summary of dates of purchase, description of product purchased and dollar sale amount for each purchase;
    • A statement that Colorado requires that the purchaser file a sales/use tax return at the end of the year and pay tax on all Colorado purchases on which no sales tax had been collected;
    • Inform for the purchaser that the form and further information is available at www.taxcolorado.com;
    • Notification that the marketer is required by Colorado law to provide the Colorado Department of Revenue with the total dollar amount of purchases the purchaser made; and,
    • Though not required, it may inform the purchaser whether an item purchased is exempt from Colorado sales tax.
  • Send an annual report to the Colorado Department of Revenue by March 1, 2011 (and each subsequent year) that detail the purchase history for the past year of each Colorado purchaser. The data must be sent electronically in a format that will be published on the Colorado Department of Revenue website (www.taxcolorado.com) by November 1, 2010. The data must include:
    • Name of the Colorado purchaser;
    • Billing address of the purchaser if provided to the marketer;
    • Shipping address of each purchaser if provided to the marketer;
    • If the marketer has multiple billing and/or shipping addresses of the Colorado purchaser (Colorado purchaser is a consumer who has product shipped to him/herself in Colorado), provide all such addresses; and,
    • Total amount of Colorado purchases made by the purchaser from the marketer.

Penalties:

• Failure to provide notification to the State of Colorado:
  • If the retailer had no actual knowledge of the notice requirement and provides notice within 60 days of demand from the Department of Revenue, $5,000;
  • Otherwise, $50,000 for the first calendar year the retailer was obligated to provide notices; and.
  • Subsequent years, no limit specified.
• Failure to provide notice to customers:
  • There is a $5 fine per invoice not including the notice, effective May 1, 2010.
  • There is a $10 fine for each failure to report to a customer his/her purchases annually
  • If summary is less than or equal to 30 days late, $1,000;
  • If summary is sent within 60 days after demand by the Department of Revenue and the retailer had no actual knowledge of the requirement, $10,000; and,
  • Otherwise, $100,000 for the first calendar year the retailer was obligated to provide notices; and.
  • Subsequent years, no limit specified.

*Colorado Purchasers are defined as follows: With respect to sales of goods that are shipped to the purchaser, a Colorado purchaser is a purchaser that requests the goods be shipped to Colorado. NOTE: Items sent as gifts to Colorado residents but NOT purchased by Colorado residents are NOT subject to this law.

Links to Legislation

• The emergency regulations can be found here
• The draft permanent regulations can be found here

Current status of the legislation
There is a bill before the Colorado legislature which has not been signed into law yet that requires notifying customers and the Colorado Department of Revenue of purchases made by Colorado purchasers. Currently there is an emergency regulation which stipulates the requirements/penalties above. The emergency regulation is currently effective but waives all penalties for inaction between March 1 and April 30, 2010. The notification requirement starts Saturday May 1. Links to both the Emergency Regulations and the actual legislation can be found above.

There are hearings on the legislation scheduled for next week. The DMA and the ACMA are mounting a joint effort to fight this legislation, especially because Tennessee, California and other states are watching what is happening in Colorado so they can introduce their own legislation. Additionally, many states through a multi-state coalition are considering methods of requiring catalogers and online merchants with no physical operations in a state in fact to pay sales tax to that state. The industry groups do not have the resources to mount a federal lawsuit and are requesting contributions. For further information on that action, please contact Hamilton Davison at ACMA (hdavison@catalogmailers.org, 800-509-9514) or Jerry Cerasale at the DMA (jcerasale@the-dma.org, 202-861-2423).

Tags: Colorado Internet tax, Colorado tax law, e-commerce law, Internet retail tax, internet tax, merchant law, tax law Category: Blog, News, What's New. You can leave a response, or trackback from your own site.