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.

New Tax Laws Enacted in CT & MS

As more businesses enter the online marketplace to sell goods across borders, states are creating laws to capture sales tax for online transactions. Recently, both Connecticut and Mississippi have enacted new tax laws targeting out-of-state e-commerce sellers. Check out the following articles to learn more:

Connecticut to Tax Web Cookies
Mississippi to Tax Out-of-State Sellers

California Tax Update

Do you do business in the state of California, or are you considering expanding into the state? Join our State and Local Tax team for a webinar on December 7 and learn the ins and outs of California tax filing. This session will discuss registration and forms, various taxes, starting and closing a business, and more! Learn more and register here.

Washington sales tax bill targets out-of-state sellers and third-party marketplaces.

Washington Governor Jay Inslee has signed legislation to help the state collect sales and use taxes from online transactions. The bill, H.B. 2163, combines elements of recent legislation in Colorado and Minnesota.

Washington follows Colorado’s lead by requiring vendors selling within the state to either collect sales tax from Washington buyers or report them to the state for assessment of use taxes. It follows Minnesota’s lead by imposing the same requirement on “online facilitators,” such as Amazon, eBay and Etsy. Vendors selling only through such third-party marketplaces will not have to comply separately.

A similar rule is applied to “referrers.” This rule applies to any taxpayer who:

…contracts or otherwise agrees with a seller to list or advertise for sale one or more items in any medium, including a web site or catalog; receives a commission, fee, or other consideration from the seller for the listing or advertisement; transfers, via telephone, internet link, or other means, a purchaser to a seller or an affiliated person to complete the sale; and does not collect receipts from the purchasers for the transaction

Vendors, third-party facilitators and referrers who opt to not collect sales taxes have to refer their customers to Washington revenue officials. They also must post prominent notices on their websites of the requirement for Washington customers to remit use taxes on their purchases.

Online vendors and marketplaces are subject to the rules if their annual sales in Washington exceeded $10,000 in the previous calendar year. The cutoff for referrers is gross income from Washington referral sources exceeding $267,000. The rules take effect January 1, 2018.

Reports say litigation is likely, but so far efforts to overturn notification requirements in court have failed. Taxpayers who might be affected should be considering how to comply with the new rules. Contact a member of our State and Local Tax team to learn more.

 

 

2017 State Business Tax Climate Index

The Tax Foundation has recently published their 2017 State Business Tax Climate Index. This is a great tool for businesses and taxpayers to compare how well their state’s tax structures stack up against other states. The number one state in this year’s index is Wyoming, and the worst-ranked state is New Jersey. Click here to learn more and see how your state ranks.