Colorado Publishes Permanent Rule for Notice and Reporting Requirements

On November 25, 2017 Colorado published a permanent rule in regard to its Notice and Reporting requirement for out-of-state retailers. The permanent rule includes a few minor changes and clarifications from the previously announced requirements.

Summary of Rule

Effective July 1, 2017, Colorado required an out-of-state retailer whose total gross sales into Colorado are $100,000 or more, and who does not collect Colorado sales tax, to give a transactional notice to their Colorado purchasers that sales tax has not been collected and that use tax may be owed. Additionally, if any of their Colorado purchasers purchased more than $500 worth of products in a calendar year, then a Purchase Summary must be mailed to that purchaser and a corresponding Informational Report given to the Colorado Department of Revenue.

Noteworthy Changes with Permanent Rule

  1. Colorado has recognized that some out-of-state retailers making online sales utilize third party payment processing vendors. Previously, to give a transactional notice, an online retailer would be required to display a transactional notice on the “check out” page. However, for retailers that use a third party payment processor, they may not have control of the content that is on the “check out” page. Therefore, those retailers can now give the transactional notice on the “product page” of their website.
  2. For retailers that utilize subscription type sales such as a “Jelly of the Month Club,” Colorado has clarified the notice requirements. For subscription type sales, a transactional notice is only required when the purchaser enrolls in the subscription or renews it.
  3. The maximum penalty limitation given to out-of-state retailers for the first year that they are required to comply, has been removed. Now, if an out-of-state retailer fails to comply with Colorado’s Notice and Reporting rules they will have to show that they “reasonably had no knowledge” of the requirement, to be subject to a maximum penalty.
  4. Unlike Washington, Colorado does not directly impose a duty to either collect sales tax or comply with their Notice and Reporting requirement on marketplace providers, such as Ebay. But, sellers (with gross sales of $100,000 or more), that utilize online marketplaces, are still required to comply with Colorado’s Notice and Reporting requirement regardless of their use of a marketplace provider platform. However, the permanent rule allows marketplace providers to satisfy the Notice and Reporting requirements on behalf of the sellers.

Transactional Notice

Colorado has indicated that online retailers must include certain elements in the transactional notice. Sample language would include the following:

[Name of retailer] does not collect Colorado sales or use tax. This purchase is not exempt from Colorado sales or use tax merely because it is made over the internet or by other remote means. The State of Colorado requires purchasers to (A) report all purchases that are taxable in Colorado and for which no tax was collected by the retailer and (B) pay tax on those purchases.

The permanent rule will be effective on January 1, 2018.

If your company makes sales into Colorado without collecting sales tax, contact Eide Bailly’s State and Local Tax Team for assistance with how to comply with Colorado’s Notice and Reporting requirements.

Washington Sales/Use Tax Reporting Required

Starting January 1, 2018, similar to the State of Colorado, the State of Washington has created a new sales tax reporting requirement where retailers must issue a notice to the buyer saying “use tax” may be owed. Businesses with more than $10,000 in WA sales (compared to Colorado’s $100,000) will be required to comply. Remote sellers must either collect and remit tax or adhere to the reporting requirements.

Compliance Requirements

The seller must notify the purchaser at the time of purchase and then send a follow-up notice by February 21 of the year following the year of the original transaction. A detailed notice must also be sent to the State of Washington by February 28 of the following year with an officer signed affidavit. In addition, “use tax may be owed” language needs to be included on seller advertising materials, which would include the seller’s website. The seller also needs to furnish year-end information to the purchaser and the state, to inform the purchaser that the State of Washington requires the purchaser to file a use tax return.

Steep Penalties

Penalties for non-compliance start at $20,000 and can grow to over $100,000.

But, the debate continues. Watch for additional information as states create ways to collect more sales and use tax from remote/online businesses for sales within their state. These new rules make for an added layer of compliance and complexity that businesses often overlook and/or lose track of. Contact your Eide Bailly professional or a member of our State and Local Tax Team for assistance.

Multistate Tax Compact Apportionment Election Upheld by Michigan Supreme Court

On July 14, 2014, the Michigan Supreme Court ruled in International Business Machines v. Michigan Department of Treasury that the taxpayer was allowed to use the three-factor formula apportionment election provided under the Multistate Tax Compact (MTC) in determining its 2008 Michigan Business Tax (MBT). Read more at http://link.plantemoran.com/m/1/90311804/b19914-56621273-fdb4-4585-add6-b50cae69355a/1/854/77ac9ea4-0720-4ecf-b640-e4a947c8923f.

State and Local Tax Burdens

The Tax Foundation released a report outlining the state and local tax burdens of the residents of each state. Some of the key findings of the report are below:

•During the 2011 fiscal year, state-local tax burdens as a share of state incomes decreased on average. This trend was largely driven by the growth of income in all states.
•In 2011, the residents of New York, New Jersey, and Connecticut had the highest state-local tax burdens as a share of income in the nation. In these states, residents have forgone over 11.9 percent of income due to state and local taxes.
•Residents of Wyoming paid the lowest percentage of income in 2011 at just 6.9 percent. They replaced Alaska, which had previously been the least-taxed for multiple decades, as the lowest-burdened state in the nation. After Wyoming and Alaska, the next lowest-taxed states were South Dakota, Texas, and Louisiana.
•State-local tax burdens are very close to one another and slight changes in taxes or income can translate to seemingly dramatic shifts in rank. For example, the twenty mid-ranked states, ranging from Oregon (16th) to Georgia (35th), only differ in burden by just over one percentage point.
•On average, taxpayers pay more to their own state and local governments (73 percent of total burden). Taxes paid within states of residence decreased on average in 2011, while taxes paid to other states increased, leading to a slight decrease in total burden. Some states deviated from these national trends, however.

For the full report, visit:
http://taxfoundation.org/article/annual-state-local-tax-burden-ranking-fy-2011

Navigating 10,000 Sales Tax Jurisdictions

The number of sales tax jurisdictions in the United States has risen to 9,998 –up 300 from 2011. The table below breaks out the number of sales tax jurisdictions by state:

Total Sales Tax Jurisdictions, 2014
Alabama 791
Alaska 103
Arizona 131
Arkansas 370
California 231
Colorado 307
Connecticut 1
District of Columbia 1
Florida 56
Georgia 162
Guam 1
Hawaii 2
Idaho 9
Illinois 443
Indiana 1
Iowa 994
Kansas 428
Kentucky 1
Louisiana 341
Maine 1
Maryland 1
Massachusetts 1
Michigan 1
Minnesota 35
Mississippi 3
Missouri 1242
Nebraska 209
Nevada 18
New Jersey 2
New Mexico 142
New York 84
North Carolina 105
North Dakota 137
Ohio 96
Oklahoma 587
Pennsylvania 3
Puerto Rico 79
Rhode Island 1
South Carolina 41
South Dakota 251
Tennessee 125
Texas 1515
Utah 310
Vermont 12
Virginia 174
Washington 346
West Virginia 11
Wisconsin 70
Wyoming 23

TOTALS 9998
Source: Vertex, Inc.
Despite simplification efforts on both the state and federal level, it would appear that the complexity of navigating sales tax in the United States has risen.

The Marketplace Fairness Act (MFA), a piece of legislation that would give states the authority to require remote sellers to collect and remit sales tax, overwhelmingly passed the Senate last year. Although it has been held up in the House of Representatives, pressure from numerous supporters is indicative that it, or future legislation, will eventually pass both houses. The MFA includes a provision that stipulates that certain simplifications must be made to a state’s tax code in order for states to qualify to collect online sales tax.

According to the Tax Foundation, an independent non-partisan tax research think-tank, in an attempt to convince Congress to allow jurisdictions to collect sales tax on interstate internet transactions, states have made the claim that they have simplified their sales tax systems. The Tax Foundation asserts that, while the number of jurisdictions within a state isn’t everything, “no matter how it’s measured, states haven’t yet fulfilled their promises to simplify their sales taxes.” Still, the likelihood that businesses will soon have collection liability on internet sales is becoming a more plausible reality as the MFA continues to gain traction.

MFA 2014

The backers of the Marketplace Fairness Act (MFA) are apparently planning on re-doubling their efforts to pass the legislation. According to an article from Internetretailer.com, a letter In support of the MFA, written to U.S. Rep. Robert Goodlatte (R, VA), lists “more than 300 signatories, including 174 trade associations and dozens of retailers among 137 individual companies.” The MFA would allow states to require remote sellers to collect sales tax on items that were sold within the state.

Read More:
Backers renew their push for online sales tax legislation