On June 21, 2018, the United States Supreme Court issued its Opinion in South Dakota v. Wayfair, Inc., overturning decades-old precedent requiring a retailer to have an actual “physical presence” within a state before that state can require the retailer to charge, collect, and remit its sales tax. With such a drastic change in the legal landscape, many wonder how the Supreme Court’s decision may affect their businesses.
Colorado (as we expect many others to do) has acted quickly to capitalize on the Court’s about-face. The Colorado Department of Revenue recently announced new rules, taking effect December 1, 2018, turning Colorado into a “destination-based” taxing jurisdiction—meaning, all sales will be sourced (and, therefore, taxed) based on the delivery address of the customer.
This change affects all businesses, although perhaps in different ways. If your business is located in Colorado, and you are fulfilling an order to a customer in Colorado, you must charge, collect, and remit the tax that would apply if the sale was completed in the jurisdiction where the goods are being delivered. For instance, if a business located in Grand Junction fulfills an order to a customer in the Denver metro area, the Grand Junction business now must charge, collect, report, and remit sales tax for: (1) Colorado (2.9%); (2) RTD (1%); (3) Scientific and Cultural Facilities District (1.1%); and (4) any “state-collected” county and/or municipal taxes (based on the county and municipality of delivery). This is a change from the old rule, where the business was only required to charge the tax for the jurisdictions the retailer and purchaser had in common (in the above example, only Colorado state taxes).
How the new rule will affect sales into “home-rule jurisdictions” (like Denver, Aurora, Colorado Springs, etc.) remains an open question. But a cautious business that routinely ships products throughout the state may be best served by obtaining a sales tax license in all home-rule jurisdictions in the state, and collect and remit all home-rule jurisdiction sales taxes based on the address to which the goods are delivered.
If your business regularly ships products to customers in another state, the new rule will affect how those transactions are taxed, as well. Under the new rule, all such sales are sourced to the delivery address—so, Colorado sales tax would not apply to deliveries outside of the state. Instead (and in light of Wayfair), Colorado businesses must take special care in determining whether, and under what circumstances, the customer’s state has a requirement for out-of-state retailers to collect and remit its sales tax on purchases into the state. In effect, the Wayfair decision now makes it possible that businesses with nationwide sales will be required to register in, and collect, and remit sales taxes to, all 50 states—regardless of whether they have any stores, employees, or property in the state.
Finally, if your business is outside Colorado, but routinely ships products to customers in Colorado, Colorado is clearly holding you accountable for collecting and remitting Colorado sales tax (including all applicable “state-collected” taxes) on those purchases. Again, whether and under what circumstances this rule would apply to a home-rule jurisdiction’s taxes remains to be seen.
Both the Supreme Court’s decision in Wayfair, and Colorado’s new rule to benefit therefrom, significantly increases both the risk and administrative burden in complying with our state’s (as well as others’) tax collection obligations. Determining what taxes you may need to collect on any transaction requires a careful review of each jurisdiction’s statutes and ordinances (state, special districts, county, and city).