Colorado Senate revises HB 1193 to focus on Use Tax Reporting

The Colorado Senate has revised HB 1193 quite dramatically.

The Good News: It no longer appears to be targeting affiliate marketing.

The Bad News: It makes no mention of conforming to the Streamlined Sales and Use Tax Agreement. In fact, it now goes into extraordinary detail asserting jurisdictional authority over out-of-state businesses.

Specifically, it states that any out-of-state business which does not voluntarily collect and remit Colorado sales tax must:

  1. Notify each Colorado customer that sales or use tax is due on all purchases from the business, and the purchaser must specifically file a sales or use tax return with the Colorado Department of Revenue. Failure to deliver this notification will subject that out-of-state business to a $5 penalty for each failure to notify.
  2. Send separately to each Colorado customer (by actual First-Class Mail by itself in an envelope labeled “Important Tax Document Enclosed”) an end-of-year summary showing the total amount paid by the customer for all purchases over the past year to that business, and reminding the customer again of their obligation to file a sales or use tax return and pay the appropriate use tax for all such purchases.
  3. Send to the Colorado Department of Revenue (by March 1 of each year) a statement detailing each Colorado customers purchasing activities during the preceding calendar year. Failure to send this statement shall subject the out-of-state business to a $10 penalty for each purchaser which should have been included in such annual statement.

There is also a fair amount of language devoted toward empowering the Colorado Department of Revenue the right to issue subpoena requiring attendance to take oral or written testimony under oath, and to produce all records relating to sales to Colorado residents, along with authorization for judicial enforcement and ability to order judgment against the retailer for contempt.

Holy burden building batman!

Now instead of businesses cancelling their affiliate programs in Colorado, businesses may just suspend all sales efforts in Colorado.

Please Colorado legislators – can we have a few minutes of your time to discuss this matter?

UPDATE 3/2/2010 – This was signed into LAW last week (on Feb. 24th) by the Governor of the State of Colorado.

2 Responses to Colorado Senate revises HB 1193 to focus on Use Tax Reporting

  1. Regarding HB 1193, there seems to be some confusion and debate among tax practitioners regarding the following:

    Do the notice requirements only apply to remote retailers that do not collect sales tax, and are part of a controlled group of corporations that contains a retailer with a physical presence in Colorado?

    Or do the notice requirements apply to all retailers that sell into Colorado regardless of nexus, and regardless if the remote retailer has an affiliate with a physical presence in Colorado?

    Can the state impose information reporting requirements on remote retailers that lack nexus on their own just because an affiliate has nexus, if the affiliate does not act or represent the remote retailer in any way?

    Are remote retailers that sell less than $100,000 to Colorado purchasers in a year, exempt from the notification and filing requirements? (The emergency regulations provide for this exemption; the legislation does not.)

    What do you think?

    Thanks.

    • Fed-Tax.net says:

      Good afternoon Mr. Strahle,

      First we must advise that we are NOT tax counsel, and you should seek specific clarification from your own accountants and counsel. Having said that, we can give you our interpretation based upon your questions:

      First, these new reporting and notice requirements apply to ALL sellers who choose to NOT specifically register and begin collecting and remitting sales tax on sales to Colorado purchasers.

      Next, these new reporting and notice requirements have nothing to do with local Colorado affiliates, or any constructed or presumed nexus provisions as are being pursued by several other states.

      Finally, yes, there is a threshold – you do not have to report or provide notices unless you process more than $100,000 worth of sales to Colorado purchasers. HOWEVER, how are you to know if or when you will cross that threshold? Perhaps you could simply do nothing, and then suspend all sales to Colorado purchasers once your sales volume gets to $99,999, and then wait until your 12 month look back has moved forward by a month, then you could resume sales until you reach that ceiling again. Not likely a good solution. So, if you expect you will get anywhere close to the threshold, you should immediately implement notice mechanisms, and prepare for the annual statements to purchasers, and accounting reports to the Colorado Dept. of Revenue.

      Once again, these are simply our thoughts; you should review the situation with your own counsel, and make your plans based upon their best advice.

      Thank you for your well considered questions!

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