What Happened: The U.S. Supreme Court upheld a Colorado law that requires remote sellers to comply with complex notice requirements or simply charge sales tax to Colorado customers.
What This Means: Online retailers should be prepared for Colorado to enforce compliance with this new requirement.
What You Can Do: If you are a retailer selling more than $100,000 into Colorado per year, you should plan to either notify your customers of their tax obligations, or collect and remit sales tax to Colorado, which Taxify can do for you.
The U.S. Supreme Court let stand a Colorado law that puts increased pressure on online retailers to assist in sales tax collection. The legislation, referred to as the “Amazon Tax law”, requires businesses selling more than $100,000 into the state per year to turn over customers’ names, addresses, and purchase amounts to tax authorities. Online sellers can avoid the notification requirement by collecting and remitting sales tax on behalf of consumers.
After its debut in 2010, the Colorado law came into the spotlight when the Direct Marketing Association (DMA), a trade group with deep roots in online retail, challenged the law’s constitutionality. In December 2016, the Supreme Court declined to hear the DMA’s case, upholding the Tenth Circuit Court of Appeal’s decision that the law is indeed constitutional.
What This Means for Online Retailers
With the Supreme Court declining to take the case, the constitutionality of the Colorado law has effectively been settled. Online retailers selling more than $100,000 into the state per year should be prepared to face the fact that they may soon be required to comply with these requirements:
- Notify purchasers that even though no tax is being collected, use tax may be due and payable by the purchaser to the Department of Revenue.
- Provide an annual report to all Colorado customers who purchased more than $500 of goods in a given year, showing their purchases broken down by date, category and amount.
- Provide the Department of Revenue with an annual report showing the names of all Colorado customers, their address, and the total dollar amounts of purchases in the prior calendar year.
Online retailers selling more than $100,000 into the state per year should be prepared to face the fact that they may soon be required to comply with these requirements.
While a state court injunction remains in place in the short term, we fully expect that Colorado will issue additional guidance explaining the requirement and may even begin enforcing the rules through penalties in the very near future.
It is important to understand that these notice requirements only apply to remote sellers that are not registered to collect and remit sales tax in Colorado. Sellers can effectively avoid these requirements by registering and collecting state sales tax on Colorado transactions. If you choose this option, a provider like Taxify can help remain compliant!
According to Chuck Maniace, Director of Tax Research at Sovos, “Over the last few years, there has been a clear national trend towards states stretching — and sometimes outright breaking — the existing legal constraints on the taxation of remote commerce. With the legality of notice provisions finally settled, we fully expect to see additional states move to impose these requirements and to apply penalties for non-compliance.”
Sovos Compliance will continue to monitor any further developments relating to this decision and update our clients accordingly.
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