Colorado Codifies Economic Nexus Rule and Enacts Marketplace Nexus Legislation

Colorado has enacted legislation that codifies the state’s economic nexus ruling, effective June 1, 2019, and creates new requirements for marketplace facilitators, effective October 1, 2019. A retailer (marketplace facilitator, marketplace seller, or multichannel seller) has economic nexus in Colorado and is deemed doing business in the state if, in the previous calendar year, the retailer has made retail sales of tangible personal property, commodities, or specified services that exceed $100,000. Marketplace facilitators that exceed the $100,000 threshold are required to collect on behalf of their marketplace sellers. The bill also repeals click through and affiliate nexus provisions effective June 1, 2019.

If a retailer does not currently meet the threshold, they will be considered to have economic nexus on and after the first day of the month after the ninetieth day the retailer made retail sales in the current calendar year that exceed $100,000.

A marketplace facilitator must include all sales made by marketplace sellers in and through its marketplace towards the threshold. A marketplace seller shall not include any sales made in or through a marketplace facilitator’s marketplace towards the seller’s individual threshold – the seller will only include direct sales, such as sales made through its own website.

A “marketplace” means a physical or electronic forum, including, but not limited to, a store, a booth, an internet website, a catalog, or a dedicated sales software application, where tangible personal property, commodities, or services are offered for sale.

The state defines “marketplace facilitator” as a person who:

  • Contracts with a marketplace seller to facilitate for consideration, regardless of whether the consideration is deducted as fees from the transaction, the sale of the marketplace seller’s tangible personal property, commodities, or services through the person’s marketplace;
  • Engages directly or indirectly, through one or more affiliated persons, in transmitting or otherwise communicating the offer or acceptance between a purchaser and the marketplace seller; and
  • Either directly or indirectly, through agreements or arrangements with third parties, collects the payment from the purchaser and transmits the payment to the marketplace seller.

A marketplace facilitator does not include a person that exclusively provides internet advertising services or lists products for sale, and that does not otherwise meet the definition above.

A marketplace seller that strictly sells through a marketplace does not have liabilities and obligations to register and collect and remit sales tax if the marketplace seller can show the sales were facilitated by a marketplace facilitator. To prove this, the marketplace sellers needs a contract with the marketplace facilitator that explicitly states the facilitator will collect and remit sales tax on all sales subject to tax or a good faith certification that the marketplace facilitator is registered and will collect tax on sales made through the marketplace.

A marketplace facilitator may be relieved of liability if it can demonstrate that failure to collect tax on sales by a marketplace seller was due to incorrect information provided by the marketplace seller. If a marketplace facilitator is relieved of liability, the marketplace seller becomes liable for the tax amount the marketplace facilitator failed to collect, plus applicable penalties and interest.

The new law also codifies the Department of Revenue’s destination sourcing rule for state sales tax collection. Destination sourcing refers to collecting tax based on where the good or service is received by the purchaser, versus taxing based on the physical location of the business. For more information, you can visit the Colorado Taxation Division’s Sales Tax Information for Out-of-State Retailers page. (H.B. 19-1240, Laws 2019)

Posted on June 17, 2019