The Colorado Department of Revenue (CDOR) has issued updated guidelines for use tax reporting requirements for retailers that do not collect Colorado sales or use tax (Non-Collecting Retailers). The law was passed on July 30, 2010, but challenges by state and federal courts delayed its implementation. In February 2016, The US Supreme Court ruled in favor of the CDOR in Direct Marketing Association v. Brohl, concluding that Colorado’s remote seller reporting requirements did not violate Quill Corp. v. North Dakota. The CDOR, in turn, has agreed to waive any penalties for non-compliance for transactions prior to July 1, 2017.
Following the SCOTUS ruling, Colorado began implementation of their use tax notice and reporting requirements on July 1, 2017. Under this law, out-of-state retailers who are not required to collect and report sales tax will now have an obligation to notify customers about their use tax obligations. The CDOR also requires retailers to report this information to the Department through an Annual Customer Information Report. The first report is due on March 1, 2018 and must include the purchaser’s name, billing and shipping addresses, and total annual dollar amount of each Colorado customer’s purchases. The identification of the products being purchased is not allowed to be disclosed. Retailers will need to register with the Department at least five days before submitting the Annual Customer Information Report.
Non-Collecting Retailers are required to provide customers at the time of purchase with a transactional notice informing the customer that the retailer has not paid Colorado state sales taxes on the item(s) being purchased, and that the customer may have a use tax obligation to the state. Retailers are also required to provide an Annual Purchase Summary to all Colorado Purchasers by January 31 of the following year.
- Colorado will impose penalties for noncompliance of use tax reporting to non-collected retailers. A non-collection retailer will be fined $5 for each sale to a Colorado purchaser that does not provide the Transactional Notice. Colorado has set limits to the penalties under these circumstances:
- For a Non-Collecting Retailer that reasonably had no knowledge of the requirement to provide Transactional Notices and began to provide the required Transactional Notices within 60 days of demand by the Department, $25,000;
- For a Non-Collecting Retailer that sells only tangible personal property that is not taxable in Colorado or sells tangible personal property only to Colorado Purchasers that are not subject to sales or use tax, no penalty shall be collected.
No penalty shall be collected with respect to sales that are de minimis (a Colorado Purchaser whose total Colorado Reportable Purchases for the prior calendar year are less than $500).
The detailed instructions published by the CDOR can be found here.
REDW’s State and Local Tax team is here to help you with use tax notice and reporting requirements. Please contact James Ortiz if you have any questions.
