Did you know that if you hold a yard sale or sell a used item through Craigslist or the like, Colorado law requires you to collect and remit sales taxes? Did you know that, technically, you could be prosecuted for felony tax evasion if you fail to do that? This is one of those crazy laws that almost no one knows about and that’s not typically enforced, but that an abusive prosecutor easily could use to target people. The legislature should fix the problem promptly.
A quick disclaimer: Although I am conveying information from Colorado statutes and from the Department of Revenue (DOR) as completely as I can, I am not a lawyer or a tax expert, and nothing in this article is intended as legal advice. I feel I need to say that because Colorado’s tax laws are so insanely complicated that hardly anyone understands them, and that includes legislators. I’ll note that a spokesperson from DOR was very helpful in answering my questions. We should blame the legislature, not DOR, for problems with the tax laws. The legislature writes the laws and is responsible for fixing them.
I started wondering about this issue because I have a couple sets of old books that I’m thinking about selling. Surely selling a couple hundred bucks worth of old stuff wouldn’t mire me in sales-tax paperwork, right? Think again—this is Colorado, after all. Our tax laws are practically custom-made to ensnare the innocent. Common sense has nothing to do with it.
This may all sound crazy to you, so let me walk you through what I found out.
When I Googled, “Do you have to collect sales tax for Craigslist,” the top result is from Avalara. The article states, “Craigslist is designed to enable what state tax authorities usually call ‘isolated or occasional sales.’ One-off sales like those one turns to Craigslist for are usually sales tax-exempt.” But the “usually” here applies to other states, not to Colorado, where legislators go out of their way to turn people into potential tax felons.
Because I know you regularly consult the Colorado statutes before making any decision, however big or small (yes, that was sarcasm), you should have no trouble turning up Title 39, Article 26, section 103(9)(d). There you will find the following text: “An individual having an occasional or isolated sale of tangible personal property is not required to have a Colorado retail sales tax license. Such sales must be made from the private residences of such individuals, and the aggregate dollar amount of such sales may not exceed one thousand dollars for any one calendar year. . . . An annual report of casual sales must be filed with the department by every individual making such sales, and the sales tax due must be remitted. . . .” There are a few other requirements you can look up.
So someone who makes an occasional sale (with net annual sales under $1,000) normally doesn’t have to get a sales tax license. That, at least, is good. But the person still is supposed to collect and remit sales taxes. And that’s the problem. Hardly anyone even knows about this. I’ve bought stuff at yard sales and through Craigslist, and not once did someone collect sales tax. Moreover, filling out the required paperwork is an enormous hassle. What’s the point of selling a $10 used book on Craigslist if you have to spend an hour filling out some damned tax form?
I asked DOR “whether the sales tax rules apply to all cases of ‘casual [or occasional] sales.’ I have in mind things like eBay sales, Craigslist sales, yard sales, and kid lemonade stands.”
A spokesperson replied, “In Colorado, if it is not a tax exempt item or service [see the rest of 39-26-103(9)], sales tax would apply. We do have a de minimis for out-of-state retailers of $100,000, but nothing like that for in-state retailers.” If you sell even $1 worth of stuff, you’re supposed to collect and remit the tax. Which is insane.
Anyone who makes an occasional sale legally must “file Form DR0100A to remit sales tax on isolated and occasional sales [and] must file the form and remit the tax by April 15 following the calendar year in which the sale was made,” DOR says.
I asked about criminal penalties for non-compliance. The spokesperson referred me to 39-21-118, which states, “Any person who willfully attempts in any manner to evade or defeat any tax administered by the department or the payment thereof, in addition to other penalties provided by law, is guilty of a class 5 felony. . .”
The term “willfully” is tricky here. Presumably (again, this is not legal advice!), if someone does not even know about the requirements, the person who violates the rules is not “willfully” doing so. But guess what: Now that you’ve read this far, you do know about the requirements. So now if you sell a used item and fail to collect and remit the sales tax, you could be prosecuted for felony tax evasion. Congratulations!
These tax laws for “occasional” sales are almost universally ignored. The DOR spokesperson said, ” We estimate approximately 1,600 DR100As were filed for 2020″ and a similar number the year before. How many Coloradans do you think made an occasional sale last year without collecting sales taxes and filing the form? My guess is tens of thousands, but it’s hard to know.
So far as I can tell, DOR makes no effort to enforce the laws about occasional sales. The DOR spokesperson said, “The Department isn’t able to comment on our auditing practices, but the Department does not have unlimited resources and for things you define as ‘casual’ it would not usually make a lot of sense to focus Department resources on those types of events given the amount of revenue at stake.”
So, to review, here we have a law that almost no one knows about, that almost no one follows, that is not enforced, but that nevertheless potentially exposes thousands of Coloradans to abusive criminal prosecution. Here’s a thought: How about legislators fix this?
An obvious and easy reform would be to simply exempt occasional sales under a thousand dollars (annually) from the tax burden. That would solve most of the problem.
If legislators wanted to be slightly more ambitious, they could exempt the first thousand dollars, such that a person has to collect and remit sales taxes only beyond that point. Better yet, legislators could raise the threshold to $5,000. If legislators really wanted to go for it, they could also free people from the burden of the use tax, at least below a certain threshold.
I’ve made my basic points about the legal problems. While I’m at it, though, I also want to convey other details that I learned about occasional sales.
Initially I thought that making eBay sales also could get a person into tax trouble. But eBay has new policies about this: “If you sell to buyers in the US, some jurisdictions may require you to collect applicable Internet Sales Tax on your transactions. As of January 1, 2021 a total of 44 jurisdictions require the collection of sales tax. In such cases, eBay collects and remits Internet Sales Tax on your behalf.” DOR added, “EBay collects tax and is treated more like a market place facilitator.” So I’m pretty sure that would solve the problem so far as eBay sales go (again, not legal advice). As far as I can tell, Amazon leaves the burden with the seller of used items.
I was aware that regular stores usually have to add the sales tax to the purchase price; they can’t build the tax into the listed price. I asked DOR whether someone making an occasional sale “has to tack on the sales tax at the time of sale.” The spokesperson replied, “The sales tax should be in addition to the sale price; the tax cannot be included in the sale prices except for certain items like liquor by the drink.” Try explaining that to the person buying a used item from you—I’d love to see the look on the person’s face.
I also had a question about items on which Colorado sales tax has already been paid. Here was the example I sent DOR: “A person purchased a $20 book new (from a store) and paid the relevant Colorado sales taxes on the book. Then the person sold the book used through Craigslist for $10, and someone came to the person’s home, paid the money, and took ownership of the book. Are you saying that the person who sold the book is supposed to pay sales tax on the $10 sale, even though the person already paid Colorado sales taxes when buying the book new?”
DOR: “The person who sold the book should charge sales tax and remit based on the $10 purchase price; the purchaser would actually pay the tax to the seller.”
What if you place an online ad from home but then mail an item to someone in Colorado? Does that count as an occasional sale (when sales tax is not otherwise processed)? DOR: “Your example qualifies as a sale made from the individual’s private residence. If it meets the other criteria it would be the type of sale that would be eligible for a DR100A submission.” In that case, the seller is supposed to collect and remit sales taxes based on the buyer’s address; see the state’s “Geographic Information System.”
By any rational standard, Colorado’s tax laws pertaining to occasional sales are idiotic. They’re also potentially dangerous in the hands of politically motivated prosecutors. It would be trivially easy for legislators to quickly fix this. Let’s hope they do so.
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