Remote Seller of Exempt Products Has Economic Nexus in Colorado

Colorado has issued a private letter ruling stating that a remote seller that sells exempt products into the state has economic nexus. The company manufactured and sold baked goods for human consumption to Colorado customers via its website and telephone. The company’s gross revenue in Colorado during the 2018 calendar year exceeded $100,000 of retail sales. Additionally, it sold its products to Colorado customers in more than 200 transactions (note that Colorado removed its 200 transactions threshold by permanent rules, effective April 14, 2019). As such, the company exceeded the state’s economic nexus threshold and was required to register to collect and remit state and state-administered sales tax effective June 1, 2019 (when Colorado’s economic nexus legislation took effect).

The private letter ruling notes that the company’s sales of baked goods are exempt from Colorado state-level and special district sales and use taxes. The sales of baked goods may be subject to state-administered local sales tax. The private letter ruling states that “A retail sale of tangible personal property, for purposes of determining substantial nexus, includes sales of goods that are exempt from sales tax collection.” The company is required to file sales tax returns even if all sales are exempt from state and state administered local sales taxes. Colorado retailers are obligated to file sales tax returns reporting all retail sales, both taxable and exempt. Based on this, remote sellers should include exempt sales (but exclude sales for resale) when determining if they meet Colorado’s economic nexus threshold. (Private Letter Ruling 19-003, Colorado Department of Revenue, June 7, 2019)

Posted on October 16, 2019