CO States Use Tax

How to Handle the New Colorado Use Tax Notice and Reporting Requirements

by Jennifer Dunn

Colorado Sales and Use Tax

After a prolonged court battle, Colorado’s “Notice and Report” law went into effect for eCommerce sellers on July 1, 2017. Many online sellers who do not collect Colorado sales tax but do make sales into the state will be affected by this new law. Read on to find out if your business will be affected and, if so, more on Colorado’s newly released guidance on how to comply.

Note: When reading this, you’ll notice that some of the info in here, such as due dates and exact criteria for compliance, is still up in the air or to be decided. We recommend continuing to check with the Colorado Department of Revenue since this is a changing story.

Who is required to comply with the Colorado notice & report law?

According to the Colorado Department of Revenue, “every non-collecting retailer whose Total Gross Sales into Colorado are $100,000 or more in a calendar year” shall be required to comply with this law.

So if you don’t make more than $100,000 in taxable sales to buyers in the state of Colorado then you don’t have to worry about this law right now. If you do begin to make more than $100,000 in sales to Colorado buyers in the future, then it’s time to revisit this requirement.

What you need to do starting now

If your business is required to comply with this law, the Colorado Department of Revenue says that you should immediately begin providing “transactional notices” to your Colorado buyers.

According to Colorado law, a transactional notice is required when you sell a taxable item (or items) to a Colorado buyer and do not collect sales tax. The notice should appear on the website close to the “tax due” or other “tax” line item.

The transactional notices should contain the following information:

  • A statement that you, the retailer, do not collect sales tax in Colorado
  • That the purchase is not exempt from sales or use tax became it was made over the internet or by other remote means
  • Notification that the state of Colorado requires purchases to a) file or sales or use tax return reporting all purchases that are taxable in Colorado but for which no tax was collected b) pay tax on this purchases

The transaction notices may also contain the following supplementary information:

  • A statement that you, the retailer, will provide the buyer and annual summary an annual summary in order to help him/her file and pay the use tax return
  • Use tax return details can be found at www.colorado.gov/tax (Note: The wording seems to indicate that the Colorado Department of Revenue will soon release a more specific website about this)
  • Notification that you, the retailer, are required by law to provide the Colorado Department of Revenue with an annual report indicating the total dollar amount of the buyer’s purchases. Also, no other information – such as the content of the purchases – will be required.

Sell on a marketplace like Amazon FBA or eBay? The guidelines state that marketplaces can provide the transactional notice on behalf of sellers. We recommend contacting your marketplace’s customer support to ensure that they are complying with this new law.

You can find much more about this on the Colorado Department of Revenue’s document about the notice and report law.

What you need to do next year

Aside from sending transactional notices each time a Colorado buyer makes a purchase from you, you are also required to do two things at the beginning of next year (and each year following):

1. Provide Customers with an Annual Purchase Summary

As a non-collecting retailer with more than $100,000 in sales in Colorado, you are required to provide your customers who made more than $500 in purchases from you over the calendar year with an “Annual Purchase Summary.”

Important to know:

  • Annual purchase summary should be sent to the customer’s last known mailing address by January 31st of the year following the purchase(s)
  • The envelope should be marked “Important Tax Document Enclosed”
  • If you wish to send this communication via email, you must ask your customers to opt-in and do so no later than December 15 of the year before. (I.e. for this year, the final opt-in notification date would be December 15, 2017)

2. Provide an Annual Customer Information Report to the Colorado Department of Revenue

If you were required to provide one or more Annual Purchase Summaries to your Colorado customers, then you are also required to report this information to the Colorado Department of Revenue. This document helps the Colorado Department of Revenue track down the buyer and ensure that they pay the use tax they owe to the state.

The information you provide should include:

  • The customer’s name
  • The customer’s billing address, noticed address and shipping address (if known). If you have more than one address, provide all of them
  • The total amount of Colorado Reportable Purchases (i.e. taxable purchases), including shipping and other fees charged to the customer during the prior calendar year. You may exclude charges and fees that you are certain are not taxable in the state of Colorado

Thankfully, though Colorado has not released guidance yet, you should be able to send this notice to the Colorado Department of Revenue electronically. They have promised guidance on the Colorado Department of Revenue website by November 1st. The current due date of the Annual Customer Information Report is unknown/not yet published.

There’s a lot more information about this in the Colorado Department of Revenue’s document about the notice and report law.

What happens if I don’t comply?

Penalty for failing to provide the Transactional Notice at the point of sale

There is a penalty of $5 for each time you, the retailer, fail to provide the Transactional Notice to Colorado purchaser, with a maximum fine of $25,000 for retailers who “reasonably had no knowledge of the law.” Thankfully, “The Executive Director of the Department [of Revenue] may waive all or any portion of a penalty for other reasonable cause shown.”

Penalty for failing to provide an Annual Purchase Summary to buyers

  • The penalty for failing to send an Annual Purchase Summary to your Colorado buyers who spent more than $500 with you over the calendar year is $10 per notice
  • The penalty for sending the Annual Purchase Summary late, but within 30 days, should not exceed $1,000
  • The penalty for for someone who reasonably had no knowledge of the requirement to send an Annual Purchase summary and who sends the summary to buyers within 60 days should not exceed $50,000

Penalty for failing to provide an Annual Customer Information Report to the Colorado Department of Revenue

  • The penalty for anyone who fails to file a Colorado Annual Customer Information Report is $10 for each buyer who should have been included in the report
  • The penalty for filing your Annual Customer Information Report within 30 days of the due date should not exceed $1,000
  • Then penalty for filing your Annual Customer Information Report within 60 days of the due date should not exceed $50,000

Like I mentioned at the beginning of this post, while this guidance is helpful, there is still quite a bit of “to be decided” here. If you have specific questions or comments about compliance, I recommend contacting the Colorado Department of Revenue for more info. You can find the best way to contact each state department of revenue via phone here.

Have something else to say? Start the discussion in the comments!

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