By: Nick Richards and Keith Buckley
Trying to avoid sales tax by making purchases online? Not so fast. Effective July 1, 2017, Colorado’s “Amazon Tax” law took effect with the purpose to push online retailers into collecting sales tax for purchases made in Colorado. Effectively, online retailers are now left with two choices, collect the sales tax at time of purchase or pass the burden onto the consumer to pay use tax and report the requirement to the State.
Colorado consumers who make tax free purchases are required to file and pay use tax unless such purchases are tax exempt (wholesale purchases and manufacturing equipment for example). Use tax is the converse to sales tax – it requires the “user” of a tangible personal property to pay the sales tax that was due but not paid at time of sale. Technically, the use tax requirement should solve the problem with online sellers not charging sales tax. But the issue is that it is difficult to track and enforce use tax requirements.
It has been estimated that Colorado was losing $352 million a year as a result of tax free online sales and the inability to enforce sales and use tax requirements. The problem stems from the U.S. Constitution, Dormant Commerce Clause and Quill v. North Dakota, a 1992 U.S. Supreme Court case that held that, while sales tax is due for out-of-state sellers making sales within the state, states cannot force companies, with no physical presence in the state, to collect it. Online internet sellers like Amazon do not have a physical presence in Colorado and, as a result, they did not charge sales tax resulting in an unfair advantage over stores located in Colorado that had to charge and collect sales tax.
Colorado created the notice and collection requirements, to combat the problem, but was initially challenged in court. The changes sought to create reporting requirements for online sellers that would prompt them to collect the tax rather than send out notices. After several years of litigation regarding the notice requirements, the Supreme Court sided with Colorado.
Colorado’s legislation seeks to force online retailers selling goods within Colorado to collect sales tax or report the sales to the customer and the state of Colorado. Because the reporting requirements are more onerous than collecting the tax, Colorado believes that online retailers will charge and collect sales tax. Specifically, non-collecting companies are required to send customer notices for every purchase and, if the customer spends over $500 in a year, an annual summary must also be sent to the customer. And, the online companies are required to file an annual report with Colorado detailing the sales and customers.
Perhaps seeing the writing on the wall, Amazon has been collecting and remitting sales tax in Colorado since February of 2016.
Colorado has a complex tax regime and the sales and use tax obligations are complicated and particularly important for businesses. At Dill Dill Carr Stonbraker & Hutchings, PC, our Denver Tax Attorneys can help you understand your Colorado sales and use tax obligations and help resolve your tax problems. Call us directly at (303)777-3737 or e-mail us at info@dillanddill.com.