Colorado: New Retailer Nexus Presumption Standard Begins March 1, 2010! (plus other filing requirements)

As I stated in earlier posts, Colorado has suspended several tax exemptions, and expanded or clarified the taxation of software, etc. However, one of the bills the Governor signed creates a rebuttable nexus presumption that out-of-state retailers (that do not collect Colorado sales tax) are doing business in Colorado if they are part of a controlled group of corporations which contains a retailer with a physical presence in Colorado. This new law takes effect March 1, 2010; or in other words, today!

Here is the excerpt from the Bill (H1193):

COMMENCING MARCH 1, 2010, IF A RETAILER THAT DOES NOT COLLECT COLORADO SALES TAX IS PART OF A CONTROLLED GROUP OF CORPORATIONS, AND THAT CONTROLLED GROUP HAS A COMPONENT MEMBER THAT IS A RETAILER WITH PHYSICAL PRESENCE IN THIS STATE, THE RETAILER THAT DOES NOT COLLECT COLORADO SALES TAX IS PRESUMED TO BE DOING BUSINESS IN THIS STATE. FOR PURPOSES OF THIS SUBPARAGRAPH (II), "CONTROLLED GROUP OF CORPORATIONS" HAS THE SAME MEANING AS SET FORTH IN SECTION 1563 (a) OF THE FEDERAL "INTERNAL REVENUE CODE OF 1986", AS AMENDED, AND "COMPONENT MEMBER" HAS THE SAME MEANING AS SET FORTH IN SECTION 1563 (b) OF THE FEDERAL "INTERNAL REVENUE CODE OF 1986", AS AMENDED. THIS PRESUMPTION MAY BE REBUTTED BY PROOF THAT DURING THE CALENDAR YEAR IN QUESTION, THE COMPONENT MEMBER THAT IS A RETAILER WITH PHYSICAL PRESENCE IN THIS STATE DID NOT ENGAGE IN ANY CONSTITUTIONALLY SUFFICIENT SOLICITATION IN THIS STATE ON BEHALF OF THE RETAILER THAT DOES NOT COLLECT COLORADO SALES TAX.

Requirements of Retailers That Do NOT Collect Colorado Sales Tax

In addition to the rebuttable nexus presumption standard, Colorado has also created a few additional requirements for companies that do NOT collect Colorado sales tax. Again, for your convenience, I have published the actual excerpts from the bill.

Notification to Purchasers

EACH RETAILER THAT DOES NOT COLLECT COLORADO SALES TAX SHALL NOTIFY COLORADO PURCHASERS THAT SALES OR USE TAX IS DUE ON CERTAIN PURCHASES MADE FROM THE RETAILER AND THAT THE STATE OF COLORADO REQUIRES THE PURCHASER TO FILE A SALES OR USE TAX RETURN.

EACH RETAILER THAT DOES NOT COLLECT COLORADO SALES TAX SHALL SEND NOTIFICATION TO ALL COLORADO PURCHASERS BY JANUARY 31 OF EACH YEAR SHOWING SUCH INFORMATION AS THE COLORADO DEPARTMENT OF REVENUE SHALL REQUIRE BY RULE AND THE TOTAL AMOUNT PAID BY THE PURCHASER FOR COLORADO PURCHASES MADE FROM THE RETAILER IN THE PREVIOUS CALENDAR YEAR. SUCH NOTIFICATION SHALL INCLUDE, IF AVAILABLE, THE DATES OF PURCHASES, THE AMOUNTS OF EACH PURCHASE, AND THE CATEGORY OF THE PURCHASE, INCLUDING, IF KNOWN BY THE RETAILER, WHETHER THE PURCHASE IS EXEMPT OR NOT EXEMPT FROM TAXATION. THE NOTIFICATION SHALL STATE THAT THE STATE OF COLORADO REQUIRES A SALES OR USE TAX RETURN TO BE FILED AND SALES OR USE TAX PAID ON CERTAIN COLORADO PURCHASES MADE BY THE PURCHASER FROM THE RETAILER.

Notification to the Department of Revenue

EACH RETAILER THAT DOES NOT COLLECT COLORADO SALES TAX SHALL FILE AN ANNUAL STATEMENT FOR EACH PURCHASER TO THE DEPARTMENT OF REVENUE ON SUCH FORMS AS ARE PROVIDED OR APPROVED BY THE DEPARTMENT SHOWING THE TOTAL AMOUNT PAID FOR COLORADO PURCHASES OF SUCH PURCHASERS DURING THE PRECEDING CALENDAR YEAR OR ANY PORTION THEREOF, AND SUCH ANNUAL STATEMENT SHALL BE FILED ON OR BEFORE MARCH 1 OF EACH YEAR.

THE EXECUTIVE DIRECTOR OF THE DEPARTMENT OF REVENUE MAY REQUIRE ANY RETAILER THAT DOES NOT COLLECT COLORADO SALES TAX THAT MAKES TOTAL COLORADO SALES OF MORE THAN ONE HUNDRED THOUSAND DOLLARS IN A YEAR TO FILE THE ANNUAL STATEMENT.

Penalties for Non-Compliance

There are penalties for not filing the appropriate notifications to Colorado purchasers and the Colorado DOR. See the bill for all of the ugly details.

Conclusion

If these new provisions impact your company, please be aware that Colorado is in the middle of issuing emergency regulations surrounding this new law. If you have any questions regarding these new requirements and standards, please contact me at brian.strahle@bakertilly.com.

For current updates, go to COLORADO.