Many Colorado businesses are about to get slammed with a new tax collecting burden. Effective Dec. 1, 2018, the Colorado Department of Revenue will adopt new rules saying that sales taxes must be collected and remitted based on the tax rate at the point of delivery when taxable goods are delivered to a Colorado address outside the retailer’s jurisdiction. This includes any applicable state-administered local and special district taxes.
This is a hugely significant change that will further complicate an already convoluted sales tax system in Colorado.
For decades, sales taxes have been based on where the product was sold from, and the taxing districts the seller and the buyer had in common. For example, my business is located in the city limits of Brighton. If I sell a computer to someone in Brighton, I’m required to collect sales tax on top of the price of the good; a city sales tax of 3.75%, county tax of 0.75%, state tax of 2.9% and special taxing districts (RTD/SCFD) of 1.1% for a grand total of 8.5%.
If I sell to someone in Sheridan (a home rule city in south metro Denver), I collect only on our common taxing districts, which would be the special district and state sales taxes. If I sell to someone in Fort Collins, where there is no shared special district, I only collect state sales tax. I have 4 tax groups to juggle, and everyone I sell to would fall into one of 5 categories (including tax-exempt). When I fill out my sales tax form for the quarter, I do one with the state and one with my home rule city of Brighton. It’s burdensome, but at least fairly simple. All that is about to change for the worse.
As of December 1, I will have to keep track of every taxing district in the state. Back to the Sheridan example, instead of simply collecting state and special district tax, I will now have to collect the Sheridan city sales tax of 3.5% and the Arapahoe County sales tax of 0.25%. On top of that, I will be required to purchase a Sheridan sales tax license ($65) and file a sales tax return directly with the City of Sheridan.
Currently the State of Colorado collects sales tax for about 50 counties, and 150 municipalities. Two counties self-collect tax (Denver and Broomfield), and there are about 73 different home-rule cities in the state that require special sales tax licenses and forms to be filed directly with them. With these new changes, I will have to maintain a sales tax license and/or file a completely separate sales tax return with each home-rule city where I do business. Instead of assigning a customer one of five possible tax groups, I will have to keep track of hundreds.
This is a significant amount of work for a small business owner like me.
Currently I have 2 taxing authorities I have to send a check to; State of Colorado and the City of Brighton. That will potentially grow to 76.
Based on the last 18 years of my business, I will have to start collecting sales tax for at least 13 state-collected cities, 7 state-collected counties, and 27 home-rule cities that collect their own taxes. This is in addition to the taxing districts I already collect tax for now.
Keeping track of the state-collected cities and counties is a matter of separate line items on an existing state form. It is all the home-rule cities that require direct payments and special sales tax licenses that will add significant work, and cost, to maintain. If I was a state-wide business, I would be looking at about 275 separate taxing districts I would have to track. Talk about bureaucracy at its finest.
This won’t affect businesses that have a physical location where you go to pick up the merchandise from. You pay the sales tax based on where they are located. But for service oriented businesses such as mine, that sells taxable goods in various places around the state, it means a significant administrative cost increase. If I resell any hardware I am obligated to collect the appropriate tax where I deliver the equipment. But businesses do not pay taxes, they only pass that tax on to their customers in the form of higher costs of goods. Not only will my customers be hit with the additional costs because of higher tax rates, they will also have to pick up the additional cost it takes to collect and pay that tax.
I understand it is necessary to collect tax to run the essential parts of government, but this level of bureaucracy is an undue burden on small business. I don’t understand why more people aren’t screaming about this.
The new rules for in-state retailers can be found here.
Jon Kamm runs a technology consulting and service business in Brighton.