Governor Jared Polis signed House Bill 22-1027 which extends the Small Business Exemption from Sales Tax Destination Sourcing. The prior extension would have expired February 1st, 2022. With HB 22-1027 businesses with retail sales under $100,000 in are exempted from collecting sales tax based upon the delivery address through October 1, 2022, The Bill was sponsored by Sens. Jeff Bridges and Rob Woodward and Reps. Kevin Van Winkle and Cathy Kipp. It received unanimous votes in both chambers.
In a nut shell, small businesses can continue collecting sales tax based upon their physical location. Sales that involve deliveries are only subject to sales tax for the local jurisdictions the seller has in common with the buyer’s delivery address. That was the standard for state-collected local jurisdictions prior to the State’s June 1, 2019 change to destination sourcing.
Businesses not qualifying for the small seller exemption are required to collect all state-collected local sales tax in effect at the delivery address. This requires handling a very complex system for reporting the sales and the tax by nonphysical location branch/site IDs.
NOTE: This refers to state-collected local jurisdictions so what about home-rule cities? Be aware of “In-state” Economic Nexus with some home-rule jurisdictions!
Generally more than one physical delivery by the seller or seller’s agent into a home-rule city within a 12 month period will still trigger a requirement to license with and collect that home-rule city’s sales tax. Even In-state businesses that qualify for the small business exemption need to be aware that some home-rule cities have also essentially adopted in-state Economic Nexus. The list of home-rule cities that have adopted Economic Nexus for out-of-state businesses can be found here, but you’ll need to dig through their specific City’s CML Model Ordinance to see if they have adopted definitions of “Engaged in Business” that include language like Golden’s:
“(5) Any retailer who does have a physical presence in the State of Colorado, without having a physical presence within the city, that in the preceding calendar year or the current calendar year makes more than one retail sale of tangible personal property, products, or services, where the location at which property or a product is delivered by any means, including common carrier within the city, or the service rendered occurs within the city; or”
I call this “In-state” Economic Nexus, and there’s no $100,000 small seller exemption. In the example from Golden, businesses in Colorado would have in-state economic nexus with the City of Golden with the 2nd retail sale and delivery into Golden. Those businesses should register with Golden and begin collecting and remitting.
Handling sales tax in Colorado is very complicated. Please look through our other Blogs and Sales Tax Tips or Contact Us for further assistance.