Counties, municipalities, and special districts in Colorado can each impose separate local taxes on sales made within their boundaries. In addition to collecting state sales and use tax, the Colorado Department of Revenue (CO DOR) administers and collects the taxes on behalf of many local jurisdictions. However, certain “home rule” municipalities with self-governing taxing authority have opted instead to collect their own sales and use taxes. There are currently 70 such “self-collected” municipalities—each with its own sales tax licensing and collection requirements—presenting a significant compliance challenge as is for businesses with Colorado sales. The rollout of a new centralized filing system by the CO DOR and corresponding adoption of economic nexus provisions by a growing number of home rule municipalities will significantly expand the registration and collection obligations of many businesses with sales activity in the state.
Historically, the physical presence of a business in a home rule municipality has been necessary to establish sales tax nexus. The recent launch of the Sales and Use Tax System (SUTS) in June 2020 by the CO DOR allows home rule municipalities to leverage the economic nexus legislation enacted by the state following the landmark ruling in South Dakota v. Wayfair, Inc., 138 S.Ct. 2080 (2018). Before the SUTS, the consensus was that the adoption of economic nexus and marketplace facilitator laws by home rule municipalities would place an undue compliance burden on remote sellers based on the lack of a single point of sales tax administration. The SUTS is meant to provide a one-stop, online registration and remittance portal for all state-administered sales and use taxes and those for participating self-collected municipalities. Therefore, participation in the SUTS enables any home rule municipality to apply the state’s economic nexus provisions.
As of May 2021, 52 self-collected municipalities have agreed to participate in the SUTS and nearly all others are actively preparing to do so1. 41 of the participating municipalities and counting have also adopted the Colorado Municipal League (CML) Model Ordinance on Economic Nexus and Marketplace Facilitators (Model Ordinance)1. The CML Model Ordinance was developed in early 2020 along with the SUTS and provides that adopting home rule municipalities can impose sales and use taxes based on the statewide economic nexus standard. This means any business with total retail sales in Colorado of $100,000 or more in the current or previous calendar year will also now have sales tax nexus with the adopting municipalities, regardless of physical presence. Additionally, any business with a physical presence in Colorado will have nexus with an adopting municipality if it makes more than one retail sale in the municipality during the current or previous calendar year.
Per the CO DOR, businesses must begin collecting all state-administered local sales and use taxes using destination-based sourcing effective July 1, 20212. All businesses with sales tax nexus in Colorado should immediately review their local collection obligations and update their compliance systems accordingly to avoid fees and penalties.
For any questions regarding Colorado filings based on these changes, contact Clearview Group's Director of State & Local Tax, Mike Ginksi.
1Colorado Municipal League. (n.d.). CML Model Ordinance - Economic Nexus & Marketplace Facilitators.https://www.cml.org/home/advocacy-legal/Members39-Guide-to-Legal-Consulting-Services-and-Amicus-Briefs/cml-model-ordinance---economic-nexus-marketplace-facilitators
2Colorado Department of Revenue. (n.d.). Sales & Use Tax System (SUTS) Status Updates.https://tax.colorado.gov/SUTS-status-updates
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