Online shopping offers consumers several advantages including the opportunity to research product pricing, features and options as well as the ability to quickly and securely place an order from their computer. What makes it more appealing is that most only must go as far as their front door to “pick up” the merchandise. According to Statista.com, it’s forecasted that by 2021, e-commerce sales in the United States will exceed $485.3B. The good news for these businesses is their marketplace is quickly growing with opportunities abound. The bad news is that states are cracking down on sales tax collection requirements. Earlier this year, the Supreme Court issued a ruling in the case of Wayfair v South Dakota which removed the established physical presence requirement. Since then many states have changed tax collection rules and issued new guidance. Colorado recently issued updated guidance requiring qualifying online and out-of-state retailers to collect and remit sales, along with other taxes, starting December 1, 2018. To help clients, prospects and others understand the impact, Hanson & Co. has provided a summary below.
What is an Out-of-State Retailer?
An out-of-state retailer is defined as any person or business that conducts business with Colorado customers without a physical presence but has substantial nexus. Examples of physical presence include owning or renting an office space, warehouse location, industrial facility or having employees within the state.
What is Substantial Nexus?
A company has substantial nexus if they have a physical presence in the state, made $100,000 or more in gross sales into Colorado during the current or previous year and conducted 200 more transactions selling tangible personal property or services delivered into Colorado in the current or previous year. If an online or out-of-state retailer meets any one of these three requirements, they are required to comply with new collection requirements.
What Taxes Need to Be Collected?
Unlike several other states, Colorado requires out-of-state retailers to not only collect sales tax but also other taxes such as local and special district sales taxes. The additional taxes which may need to be collected are determined by the customers shipping address. To help businesses comply with these requirements, the Colorado Department of Revenue has published the Colorado Sales/Use Tax Rates which lists the city, county and special district taxes that need to be collected.
What is the Application Process?
Qualifying out-of-state retailers will be required to submit an online application for a sales tax license beginning November 1, 2018. Alternatively, a company may elect to complete and file the Sales Tax/Withholding Account Application and submit it directly to the state for review and approval.
When is the Compliance Deadline?
As mentioned above, qualifying out-of-state retailers will be required to collect and remit sales tax to the state starting on December 1, 2018. It’s important to note that transactions conducted prior to the deadline are not required by the state to collect and remit sales tax.
Sales and use tax collection rules are quickly changing. Out-of-state and online retailers need to carefully review their situation to ensure they are following state sales tax collection laws. If you are impacted it’s important to not only register with the appropriate states, but also review your accounting software to ensure sales and other taxes are included during invoicing. If you have questions about the new sales tax rules or need assistance with other tax planning and compliance issues, Hanson & Co. can help! For additional information please call us at 303-388-1010 or click here to contact us. We look forward to speaking with you soon.