August 5, 2020 Colorado home rule, self-collected municipalities begin adopting economic nexus and marketplace facilitator collection laws after launch of online centralized filing portal In June 2020, the Colorado Department of Revenue (CO DOR) launched the first version of the new Sales and Use Tax Simplification program (SUTS). This online centralized filing portal enables a single point of remittance for (1) all state-collected sales and use taxes and (2) local sales and use taxes of home rule, self-collected municipalities that have agreed to participate in SUTS. As of August 5, 2020, 20 Colorado home rule, self-collected municipalities are participating in SUTS and 14 additional self-collected municipalities are in the process of executing agreements.1 Since the SUTS launch, some home rule, self-collected municipalities have also adopted the Colorado Municipal League (CML) Model Ordinance on Economic Nexus and Marketplace Facilitators (Model Ordinance), which enables the adopting municipalities to impose economic nexus and marketplace facilitator collection laws when sales into the state (not just the individual municipality) exceed $100,000 per year.2 In introducing the Model Ordinance, the CML noted that home rule, self-collected municipalities should only adopt it if they participate in SUTS because the CML believes that complying with facilitator collection laws would be unconstitutionally burdensome under South Dakota v. Wayfair, Inc., 138 S.Ct. 2080 (2018) unless the municipality participates in SUTS. Background Under Colorado law, home rule municipalities may either allow the state to collect their municipal sales tax or elect to self-collect the tax. Self-collected municipalities are commonly referred to as "home rule" municipalities because all self-collected municipalities have "home rule" status with the state; some home rule municipalities, however, have the state collect their sales taxes. The 71 home rule, self-collected municipalities in Colorado operate essentially as self-governing taxing authorities, adopting and administrating their own sales and use tax code, enforcing compliance and conducting audits. In some cases, the self-collected municipal sales tax laws differ markedly from the state-administered sales tax law (that is, something could be taxable for municipal purposes but not for Colorado state tax purposes and the rules could vary from municipality to municipality). Launch of SUTS On April 12, 2019, Colorado Governor Jared Polis signed Senate Bill 19-006, which instructed the Department and Office of Information Technology to develop and implement an electronic sales and use tax simplification system that state and local taxing municipalities could use to accept returns and process payments of sales and use tax. Once online, the system would accept any returns and payments for state sales and use taxes, as well as any sales and use taxes collected on behalf of a municipality opting into the program. The resulting system, SUTS, will eventually include the following capabilities:
Currently, SUTS has limited functionality available. Full implementation of SUTS functionality is expected in the coming months.3 SUTS and Model Ordinance participants The following five home rule, self-collected municipalities are participating in SUTS as of August 5, 2020, and have adopted the Model Ordinance:
Many of the remaining Colorado home rule, self-collected municipalities are in the process of opting into SUTS and adopting the new economic nexus and marketplace facilitator laws. The majority of these municipalities are expected to follow in the coming year. This change represents a departure from the physical-presence nexus standard that has been historically observed by Colorado home rule, self-collected municipalities and will result in many businesses being required to collect additional local sales and use taxes on their sales to Colorado customers. Businesses with more than $100,000 in annual sales into Colorado that do not currently collect taxes for all the home rule, self-collected municipalities must evaluate their obligation to collect additional Colorado municipal sales and use taxes. SUTS participation is optional Home rule, self-collected municipalities are not required to use SUTS. If a home rule, self-collected municipality does not participate in SUTS, taxpayers will continue remitting the appropriate sales and use tax directly to the municipality's taxing authority. Contact information for each home rule municipality is available on the CO DOR's website and in the DR 1002 Colorado Sales and Use Tax Rates publication, which is regularly updated. Even if a self-collected home rule municipality participates in SUTS, taxpayers are not required to use it. A taxpayer may continue filing electronically or on paper, depending on the municipality's requirements. Registering for SUTS SUTS is entirely separate from a Revenue Online account. Taxpayers must complete a separate registration for SUTS by sending a request via email to DOR_TaxInfoEmail@state.co.us. Registering for SUTS requires a valid state sales tax license. Taxpayers are encouraged to directly contact a Colorado home rule, self-collected municipality's taxing authority with questions on licensing requirements as each municipality establishes its own tax law, rules and regulations. Colorado Municipal League Model Ordinance on Economic Nexus and Marketplace Facilitators On May 29, 2020, the Colorado Municipal League (CML) released the CML Model Ordinance on Economic Nexus and Marketplace Facilitators(Model Ordinance) for Colorado home rule, self-collected municipalities that participate in SUTS. Colorado home rule, self-collected municipalities that adopt the Model Ordinance may require sellers, including marketplace facilitators, to collect the municipal tax when the seller has over $100,000 in annual sales into the state (not just the individual municipality). Issues raised by Model Ordinance The following are some of the critical terms defined by the Model Ordinance of which remote sellers and marketplace facilitators should be aware:
The Model Ordinance requires marketplace facilitators engaged in business in a municipality to collect and remit municipal sales tax on all taxable sales that the marketplace facilitator makes or facilitates for marketplace sellers or multichannel sellers to customers in the municipality.11 The obligation to collect the sales and use tax may not be applied retroactively.12 The Model Ordinance may not be enforced by a Colorado home rule, self-collected municipality until the first day of the month that is at least 30 days after the ordinance is adopted by the municipal governing body.13 Implications SUTS is expected to be fully implemented in the coming months. Taxpayers should closely monitor the list of home rule, self-collected municipalities that are participating in SUTS and/or adopting the Model Ordinance. Taxpayers that have economic nexus in any Colorado home rule, self-collected municipality that has signed up for SUTS and adopted the Model Ordinance will need to quickly review their internal compliance systems and make all necessary changes as soon as possible.
——————————————— 1 The home rule, self-collected municipalities participating in SUTS are: Avon, Brighton, Canon City, Colorado Springs, Craig, Dacono, Durango, Evans, Glendale, Glenwood Springs, Golden, Gunnison, Loveland, Montrose, Mt. Crested Butte, Pueblo, Ridgway, Rifle, Silverthorne and Snowmass Village. 2 Colorado Municipal League maintains an updated list of self-collected home rule municipalities that have adopted the Model Ordinance here. 3 CO DOR provides frequent updates on its SUTS Status Updates website. 4 Model Ordinance, Section 1. 5 Id., Section 2. 6 Id., Section 3. 7 Id. 8 Id. 9 Id. 10 Id. 11 Id., Section 4(A)(1). 12 Id., Section 5. 13 Id., Section 7. | |||||
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