Colorado Destination Sourcing Exemption Expires January 31, 2022
All businesses located within Colorado, regardless of their sales volume, must begin complying with destination sourcing rules beginning February 1, 2022. The Colorado Department of Revenue will not grant exceptions to this statutory requirement.
In 2019, exceptions to destination sourcing were given to small businesses with less than $100,000 in retail sales. On June 30, 2021, Governor Polis signed SB21-282, which extended the small business exception to destination sourcing requirements. Now that the Colorado Geographic Information System (GIS) is online and available for everyone to use, state statute requires Colorado-based businesses using the temporary origin sourcing exception to transition to destination sourcing on February 1, 2022. The Colorado GIS allows users to search for Colorado sales tax rates and jurisdiction codes for any location, down to a street address.
Destination sourcing means that sales tax is calculated based on where the taxable product or service is delivered to the purchaser, not to the business location of the seller.
Businesses with over $100,000 in sales were not granted an exception and should already be using destination sourcing to determine sales tax rates.
Colorado General Destination Sourcing Rules
In general, retail sales in Colorado are sourced as follows:
- If the purchaser takes possession of the purchased property, or first uses the purchased service at the seller’s business location, the sale is sourced to that business location.
- If the property or service is delivered to the purchaser at a location other than seller’s business location, the sale is sourced to the location where the purchaser receives the purchased property or first uses the purchased service.
- If the purchaser requests delivery of the property or service to another recipient (i.e. the purchase is a gift), the sale is sourced to the location where the recipient takes possession of the purchased property or first uses the purchased service.
If a sale cannot be sourced using the general destination sourcing rules, Section 39-26-104(3)(a), C.R.S. provides additional guidelines for sourcing retail sales based upon the seller’s records, the location from which the property was shipped, or the purchaser’s payment instrument. These sourcing rules are for sales of property or services and do not apply to leased property.
For any questions or more information regarding local sourcing rules, for Colorado or any state, contact your sales tax experts and trusted advisors at REDW’s state and local tax (SALT) group.