Haven't yet heard anything about this here, but I participated in a DMA conference call last week regarding this and it seems to be the real deal.
Earlier this year, the state of Colorado discussed a momentous change to their state tax law. Though similar to other state laws in New York and California that expand how a company develops nexus within a state, this law goes far beyond all others and affects all direct marketers, not just those that have established nexus.
The exact requirements are not yet finalized, but on March 31st Colorado enacted emergency regulations that go into effect on May 1st. Merchants are required to begin adhering to these emergency guidelines by May 1st or face significant penalties.
Here is a brief Q&A of how the changes will affect most online merchants. For more detailed information, refer to their website [
taxcolorado.com....]
NOTE: I'm no lawyer, so you should definitely discuss this with your own counsel.
1.Does the current change to Colorado state tax law affect merchants that do not have nexus in the state of Colorado? Yes. All direct marketers that ship to the state of Colorado are affected by this change, regardless of whether they have nexus or not.
2.What orders are affected by this new tax law? Any orders that are shipped to the state of Colorado are affected. Orders that are billed to a Colorado address but shipped elsewhere are not affected. If the sale is for a digital or otherwise non-tangible product, then orders with a bill-to address in the state of Colorado are affected.
3.Do merchants have to collect Colorado state sales tax? No. Direct merchants have the option to collect sales tax on orders shipped to Colorado.
4.If a merchant opts not to collect Colorado sales tax, what is required to comply with the new law? If you don’t collect tax, there are three things you must do to comply:
a.First, you must notify the customer at the time of sale, within a confirmation email, and/or on the invoice sent with the order that a use tax must be remitted by the customer to the Department of Revenue.
b.Secondly, you must send an annual summary via first class mail to all Colorado customers outlining their purchases for the past year.
c.Lastly, the merchant must annually send an electronic file to the state tax authority including all purchases shipped to Colorado where sales tax was not collected.
5.What requirements are there on how you notify the customer at time of purchase? Notice must be provided on all Colorado purchases. The notice will be sufficient if it appears on the invoice. If no invoice is provided, it can be given to the purchaser as part of the sale, either immediately before, as part of, or immediately after the sale, including by means of an e-mail confirmation of the sale sent to the Colorado purchaser.
Merchants are advised to craft their own messages as advised by their legal counsel, but here is a sample message from the DMA:
Important Sales Tax Information for Colorado Purchasers We are not required to collect Colorado sales tax on your purchase. However, unless this sale is exempt from sales taxes, you are required to pay the tax by filing a sales/use tax form with Colorado at the end of year for all non-taxed remote purchases, including Internet purchases. We will provide you with a year-end summary of all your non-taxed purchases with us, and we are required by Colorado law to report the total purchase amount of your total non-taxed sales to the Colorado Department of Revenue. For more information go to www.taxcolorado.com. 6.What is required in regard to the annual summary for Colorado purchasers? The exact requirements are not yet finalized, but the current recommendations suggest basic info such as name, address, and total value of purchases. Notably, the summary must be sent via First Class mail.
7.What is required in regard to the annual reporting to the Colorado Department of Revenue? Though not part of the emergency regulations, the proposed statute states that merchants must send an annual report to the Department of Revenue outlining all purchases shipped to Colorado over the previous year. The report must be delivered by March 1st, for all purchases made during the previous calendar year. The report must be delivered digitally, in a format that will be announced by November on the state’s website.
8.Are there any exemptions to the new law? There are several
de minimus exemptions based on the annual sales of the merchant and the amount delivered to the state of Colorado, but they are pretty low.
There is one exemption that I'll discuss here. For customers that spend less than $250 in a calendar year, the merchant is not required to send an annual statement, and reporting on these customers to the Department of Revenue is optional.
9.What are the penalties for non-compliance? Each of the three components of the law carries its own penalties:
a.$5 per transaction for lack of notification, not to exceed the following caps:
- If the merchant had no knowledge of the requirement and provides notice within 60 days of demand from the Dept. of Revenue, $5,000.
- Otherwise, $50,000 for the first calendar year the retailer was obligated to provide notices; and.
b.$10 per customer for not providing annual summary, not to exceed the following caps:
- If summary is less than or equal to 30 days late, $1,000.
- If summary is sent within 60 days after demand by the Dept. of Revenue and retailer had no knowledge of the requirement, $10,000.
- Otherwise, $100,000 for the first calendar year the retailer was obligated to provide notices.
c.$10 per customer for not reporting to Dept. of Revenue, not to exceed the following caps:
- For filing within 30 days of due date, $1,000.
- If summary is sent within 60 days after demand by the Dept. of Revenue and retailer had no knowledge of the requirement, $10,000.
- Otherwise, $100,000 for the first calendar year the retailer was obligated to provide notices.
10.What is being done to challenge this new law? The DMA is preparing to challenge the new regulations in court, but they are also recommending that all merchants prepare to adhere to these guidelines by May 1st, 2010. As of now, no other challenges have been publicly announced, though expect some large retailers without nexus (such as Amazon) to put up some form of defense.
