Out-of-State Retailer May Collect Sales Tax According to Colorado DOR General Information Letter

In a General Information Letter dated March 4, 2024, the Colorado Department of Revenue provided clarification about the sales and use tax notice and reporting requirements for noncollecting retailers in Colorado. The business that requested the ruling had been registered previously and closed the business license since they do not have a physical presence in the state and the business’s sales were under the amount needed to establish economic nexus in the state of Colorado. In 2023, the business did make sales in Colorado but did not collect sales tax, which lead to them requesting this ruling.

The discussion highlighted that Colorado imposes sales tax on most retail transactions, and any retailer meeting the statutory definition must obtain a sales tax license and collect the tax from purchasers. Even if the tax isn’t collected, the retailer remains liable for the tax on all taxable sales made in the state. Additionally, purchasers have a duty to self-assess and pay a use tax on items bought for use, storage, or consumption in Colorado when sufficient sales tax hasn’t been paid.

The Department referenced the definition of a “retailer” and clarified that those not conducting business in the state are not considered retailers under the statute. However, businesses can voluntarily obtain a sales tax license to collect applicable taxes, even if they don’t meet the definition of doing business in the state. Once a party does register, they are liable for collecting all Applicable Colorado Sales Tax—if sales tax isn’t collected, purchasers are responsible for paying use tax on applicable purchases.

The letter emphasized that it represents the opinion of knowledgeable Department personnel but does not constitute a specific determination or bind the Department. It also noted that the letter is only in regard to state and state-administered local sales and use taxes administered by the Department; for those taxes administered by self-collected home-rule cities, businesses may want or need to reach out directly to those localities.

This is an important topic for taxpayers to be aware of, as it clarifies what happens after a business cancels their registration. Though the business no longer had a license nor were they required to register for one, the Colorado Department does still put onus on the retailer for sales tax in case a purchaser does not remit use tax. Even if they are not registered in a state, it is a good idea for businesses to track sales into the state of taxable property, in case a state conducts an audit or tries to collect sales tax from the retailer at a later date. (Office of Tax Policy, Colorado Department of Revenue General Information Letter GIL 24-002, dates March 4,2024)

Posted on April 29, 2024