Colorado to Require Remote Seller Sales Tax Collection

Effective Date: December 1, 2018 with grace period through May 31, 2019 (If not registered as of December 1, 2018, subject to notice and reporting)

Threshold: $100,000 (200 transactions removed by permanent rules, effective April 14, 2019)

Measurement Date: Previous or current calendar year

Includable Transactions: Retail sales; Marketplace sales excluded from the threshold for individual sellers

When You Need to Register Once You Exceed the Threshold: The first day of the month after the ninetieth day the retailer made retail sales in the current calendar year that exceed $100,000

Effective December 1, 2018, the Colorado Department of Revenue will require out-of-state retailers who do business and have substantial nexus in Colorado to register to collect and remit sales tax. This policy change is in reaction to the South Dakota v. Wayfair decision. The state did not pass enabling legislation. The Department plans to provide guidance for out-of-state retailers by administrative rule. The Department is soliciting feedback on the emergency rules. The rule will be consistent with the Supreme Court’s decision in Wayfair, including prospective application and a small-seller exception for retailers. An out-of-state retailer must apply for a Colorado Sales Tax License and if they don’t have a location in Colorado they will collect Colorado sales tax if, in either the previous or current calendar year the retailer has:

  • $100,000 or more of gross sales or services delivered in Colorado, including exempt sales; or
  • 200 or more transactions selling tangible personal property or services delivered in Colorado

Beginning November 1, 2018, out-of-state retailers can register for a Colorado sales tax license. Out-of-state retailers who exceed the economic nexus threshold have a registration deadline of November 30, 2018. Because the rule will not be applied retroactively, out-of-state retailers are not required to collect sales tax on sales that occurred prior to the registration deadline. For more information, you can read the Department’s news release or their FAQ page. (News Release: Colorado to require online retailers to collect sales tax, Colorado Department of Revenue, September 11, 2018)

UPDATE: The Colorado Department of Revenue has implemented a grace period for remote sellers to ensure that retailers have sufficient time to make required systems changes to comply with Colorado’s post-Wayfair sales tax collection requirements. The grace period will run through May 31, 2019 and will apply the new economic nexus laws and destination sourcing changes. Starting June 1, 2019, sellers will need to follow the new sales and use tax rules. However, it is important to note that if a retailer does not collect sales tax during the grace period, they must still comply with Colorado’s reporting statute. The reporting requirements statute, which requires non-collecting retailers to provide notices to Colorado customers and the Department about purchases where the retailer didn’t collect tax, will be strictly enforced during the grace period. To learn more about the grace period, visit the Colorado DOR site.

UPDATE: The Colorado Department of Revenue enacted changes to permanent rules, effective April 14, 2019, including:

  • The permanent rules eliminate the provision establishing substantial nexus by selling property and services in 200 or more separate transactions. Substantial nexus will be based upon physical presence or retail sales in excess of $100,000.

UPDATE: Colorado codified its economic nexus ruling with the passage of H.B. 19-1240, effective June 1, 2019. The legislation also enacts new rules for marketplace facilitators. More more information, read our news item: Colorado Codifies Economic Nexus Rule and Enacts Marketplace Nexus Legislation.

UPDATE: Colorado has issued a private letter ruling stating that a remote seller that sells exempt products into the state has economic nexus. For more information, read our news item.

Posted on September 7, 2019