Ari Armstrong, Gold Dome, Politics, Taxes

Are you a Colorado use tax felon?

Would it surprise you to learn that many or most Colorado residents, perhaps including you, are technically violating Colorado tax law? It’s true. Thankfully, a relatively simple legislative reform would fix most of the problem.

What’s going on here? You’re no doubt aware that Colorado requires retailers to collect a state sales tax on most purchases. For example, when you check out at the grocery store, your receipt shows sales tax added. People in the Denver Metro area must pay other sales taxes that the state collects for RTD and the cultural district. Other sales taxes vary by location.

What most people do not know is that, if they buy goods from out of state, whether online or while traveling, they are legally required to pay a “consumer use tax” on those items if the sales tax has not been collected. Because hardly anyone knows about this tax, and because the Colorado Department of Revenue (CDOR) makes almost no effort to enforce it, hardly anyone pays it. And that makes many or most Coloradans criminals under the law. “Willful” non-compliance with the use tax is a class-5 felony.

icon_op_edThe relevant statutes are under Title 39, Article 26, titled “Sales and Use Tax.” CDOR summarizes, “Consumer use tax must be paid by Colorado residents and businesses on purchases (items used for personal or business purposes, not resold) that did not include Colorado sales tax, such as those made over the Internet, by mail order, or by telephone.”

It’s impossible to tell exactly how many Coloradans are violating the consumer use tax statutes—but the number is at least several hundred thousand and probably several million. In 2012, only 1,310 people had paid the consumer use tax—a small fraction of the number technically required to pay it.

Obviously, having an unenforced statute on the books that turns most people into tax scofflaws is a very bad idea. Not only does such a statute breed public ignorance of and contempt for the law, it opens the possibility of unscrupulous prosecutors selectively targeting their political enemies.

Beyond that problem, for those few who actually pay the tax, as my wife and I do, complying with the required paperwork is a major hassle. Recently CDOR contacted us complaining that we had filed our taxes “wrong” for 2013 and 2014. CDOR insisted that we break down the taxes owed by category and sign our paperwork under penalty of perjury.

What’s crazy is that, while CDOR has hassled us about the consumer use tax several times—because we pay it—it makes no or almost no effort to enforce the law among all those who do not pay it. Dealing with this ridiculous tax is like walking into the pages of a Kafka novel.

My wife and I spent many hours complying with the byzantine statutes, all so we could pay around $160 in consumer use tax for both years.use-tax-250x214

If it’s politically infeasible to simply do away with the consumer use tax, the legislature could pursue a simple reform: Exempt, say, a person’s first $6,000 per year in out-of-state purchases—that’s $500 per month—from consumer use taxes. That way, only the small few who spend a great deal of money on out-of-state goods would be legally required to pay the tax.

Because hardly anyone pays the tax anyway, the revenue losses to the state would be minimal—and the benefit of not turning vast numbers of Coloradans into lawbreakers would far outweigh any loss of revenue.

This proposed reform comports with common sense and basic legal decency. It’s just wrong to keep a law on the books that defines many or most people as tax criminals for no good reason.

Colorado author and blogger Ari Armstrong wrote this for the Independence Institute, a free market think tank in Denver. He writes at AriArmstrong.com

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