General Sales Tax

Direct Marketing Association Settles with Colorado Department of Revenue

The clock is ticking for retailers who are selling to Colorado consumers. As of the publication of this post, any out-of-state business selling into Colorado will be required to comply with the new notice and reporting requirements beginning July 1, 2017.

Celebration seems to be in order as the conflict between Direct Marketing Association (DMA) and the Colorado Department of Revenue has finally been settled, giving retailers clarity on when the notice and reporting requirements will be enforced in the state of Colorado.  

Recent History of the Notice & Reporting Requirements in CO

On December 12, 2016, the United States Supreme Court denied certiorari to review the Tenth Circuit’s holding in Direct Marketing Association v. Brohl, No. 12-1175 (10th Cir. Feb. 22, 2016). By denying cert, the Court essentially let stand the lower court’s decision upholding a Colorado law requiring the reporting and notice of sales made to Colorado residents by retailers outside the state. The dispute between DMA and the Colorado Department of Revenue involved a challenge to 2010 legislation CRS 39-21-112 (3.5)(c)(II) and (3.5)(d)(III)(A)&(B) that required sellers who do not have a tax collection and remittance obligation (i.e., a nexus) within Colorado, but who have gross sales in Colorado exceeding $100,000, to perform the following activities with respect to their sales to Colorado residents:

  1. Notify purchasers at the time of the sale that tax is not being collected by the seller and may be due and payable by the purchaser to the Department of Revenue.
  2. Provide all Colorado customers who purchased more than $500 worth of goods in a given year with an annual report showing their purchases broken down by date, category, and amount. The report is also required to reiterate the use tax reporting and remittance obligation imposed on the customer.
  3. Send the Department of Revenue an annual report showing the names of all Colorado customers, their known address, and the total dollar amount of purchases in the prior calendar year.

Penalties were to be imposed for failure to comply with any of these requirements.

Final Settlement Impacts All Out-of-State Businesses Making Sales to CO Customers

On February 23, 2017, DMA and the Colorado Department of Revenue reached a settlement which concludes the dispute between the parties by dissolving the initial injunction issued February 18, 2014. This settlement indirectly impacts all out-of-state businesses making sales to Colorado customers. Under the settlement agreement, the Colorado Department of Revenue has agreed that “having found reasonable cause for non-compliance,” enforcement for compliance with the notice and reporting requirements of CRS 39-21-112 will not enter into full force until July 1, 2017. Any and all penalties for non-collecting retailers who fail to comply with the requirements of this legislation will be waived.

What’s Next

Now that a settlement has been reached, the Colorado Department of Revenue will likely convene working groups and engage in rulemaking proceedings regarding the new requirements. (This rulemaking is specifically allowed by Section 6 of the settlement agreement.) We expect to see new publications, clarification, and forms that will inform retailers of how to properly comply with the new requirements.

Until July 1, 2017: Four Months To Comply

The clock is ticking for retailers who are selling to Colorado consumers. As of the publication of this post, any out-of-state business selling into Colorado will have a little over four months to comply with the new notice and reporting requirements. Any non-compliance will subject a business to penalties which can add up quickly if action is not taken.

Sovos will continue to monitor developments from the Colorado Department of Revenue and update our clients accordingly.

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