We participated in a conference call with the DMA on Tuesday, July 20, 2010 in which we were given an update on the current requirements of the Colorado Sales/Use Tax legislation.

The regulations for the Colorado law have been finalized. Here is a synopsis of the major points that affect all retailers who sell into Colorado. These regulations apply to Calendar year 2010.

1. Merchant definition – The law applies to merchants who sell to Colorado but do not have a physical presence (nexus) in the State, and who have at least $100,000 annual gross sales in the State of Colorado. This requirement is a change from the initial legislation. If a merchant did not have at least $100,000 in gross sales into Colorado in 2009 and does not anticipate $100,000 in gross sales into Colorado in 2010, the merchant is not required to comply with the law.
2. Sales definition – Sales include all sales which are shipped to Colorado, including those purchased by Colorado residents and those who are shipping items/gifts to Colorado from another state. This definition is also a change.
3. De minimis exclusion – The following requirements do not apply with respect to an individual who has less than $500 in Colorado sales in a calendar year. However, if a merchant has at least one customer who has annual purchases of $500 or greater, the de minimis provision does NOT apply. That is, one customer with purchases of $500 or more in a year triggers compliance with the legislation for all customers.
4. Retailer/merchant requirements – All merchants who hit the overall Colorado sales threshold must provide the following three notifications:
   1. Transaction notice – The retailer is required to provide the following notification to the buyer at the time of sale (clearly legible, reasonably prominent, and located in close proximity to the total price. It shall be sufficient if the non-collecting retailer provides a prominent linking notice that reads as follows: “See important tax information regarding the tax you may owe directly to your state,” if the linking notice directs the Colorado purchaser to the information shown below):
      1. The retailer does not collect Colorado sales tax
      2. The sale is not exempt from paying Colorado sales tax merely because it is made over the Internet or by other remote means
      3. The State of Colorado requires the purchaser to file a sales or use tax return at the end of the year reporting all taxable Colorado purchases and to pay taxes on those returns

      The merchant may but is no longer required to inform the buyer:

      1. The retailer will provide an end of year summary to the customer
      2. Details of where and how to file a return
      3. That the retailer is required to report the annual amount (total amount only, no details) of a Colorado purchaser’s purchases to the Colorado Department of Revenue
   2. Annual summary to consumer with detail of Colorado purchases (dates of purchase, item category (e.g. books, consumer electronics) description, and dollar amounts. The notice must be sent by first class mail to the last known address of the purchaser with the following words prominently displayed on the envelope: “Important Tax Document Enclosed.” The notice must indicate that the retail is obligated to report only the total amount of a purchaser’s purchases; no details of the individual purchases will be included.
      Note: this annual summary does not need to be sent to customers who have spent under $500, as long as all Colorado customers have spent under $500 that year.
   3. Report to Colorado Department of Revenue – The retailer must give the Colorado Department of Revenue the following information for each Colorado purchaser:
      1. Name
      2. Billing address (if provided to the retailer)
      3. Shipping address (if provided to the retailer)
      4. Total dollar amount of Colorado purchases

      Note: The retailer does not have to provide this information if all of its Colorado purchasers spent less than $500 each. If any spent $500 or more, the obligation is to report all customers’ expenditures.

5. Penalties – Failure to provide any of these notifications can result in assessment of fines:
   1. $5 for each failure to provide the transaction notice
   2. $10 for each failure to provide the annual notice to customers
   3. $10 for each Colorado purchaser for whom the required information was not given to the Colorado Department of Revenue

A final note from the DMA: On a recent conference call, a Colorado Department of Revenue official noted that these regulations apply to both business and consumer purchases. So, to the extent that these regulations may have been perceived as applying only to consumer purchases, please review them in the context of all sales into Colorado where sales or use tax is not collected.

Here are links to relevant documents:
Final Regulations
Emergency Regulations (June 18 version)
Controlled Group of Corporations Regulations
Findings and Notice of Adoption Notice

If you have any questions, we will do our best to answer them, but we suggest that you consult with your attorney where legal issues are concerned.

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