In response to Colorado Department of Revenue Code of Colorado Regulations 1 CCR 201-4
Solutions To New Sales Tax Regulations – Things Colorado Department of Revenue (CDOR) should do to make it more feasible and fair for businesses to collect the tax they mandate.
The proposed sales tax rule, that requires sales taxes be collected and remitted based on the point of delivery, creates an unworkable and nearly impossible task for small businesses to comply with. In short, most businesses like mine will go from tracking 4 tax groups to having to track as many as 762. CDOR has an obligation to make the process as easy and painless as possible for reseller. This will not only reduce the burden on businesses for collecting the tax, but also help ensure the taxing districts receive the tax they mandate. Frankly, if they don’t make this process easy for the average small business owner, they will undoubtedly miss out on tax dollars that would have otherwise been collected. Not to mention that self-collecting cities and counties do not have the resources to audit every small business in the State and ensure compliance. Here are some things I would suggest CDOR implements prior to enforcing these overwhelming new regulations.
Problem: In-state reseller that have a non-physical presence will be held to different tax collecting standards than out-of-state resellers. An in-state reseller that delivers goods to a self-collected/home-rule city/county, must register and remit tax directly the self-collecting cities or counties they collect tax for. No such requirement exists for out-of-state reseller. Requiring an in-state non-physical business to register and remit payments directly to 73 self-collecting entities is HUGE burden and needless over complication.
Solution: CDOR should adopt rules that allow in-state resellers that have a non-physical location in a particular tax district to remit payment directly to CDOR and provide immunity to a reseller for not remitting directly to the self-collecting entity. CDOR’s system is already set up to track and account for the 762 potential taxing districts a reseller would be required to collect for. This would ease the burden on small businesses and allow them to make a single payment to CDOR for all taxing districts in the state.
Problem: Out-of-state resellers are only required to collect tax if their gross sales exceed $100,000 or 200 transactions. This rule holds in-state resellers that have a non-physical presence to different tax collecting standards. One of the stated purposes of the rule change was to “level the playing field” between brick-and-mortar and Internet reseller but creates an greater burden on in-state resellers with a non-physical presence.
Solution: Apply the same rules for ALL resellers.
Problem: CDOR does not provide a functional list of tax rates for the hundreds of taxing districts that need to be imported into an accounting package.
Solution: CDOR should provide a download, with tax rates for each taxing district that can be used to update accounting applications. Currently, CDOR provides a spreadsheet with Location Codes and the various Tax Type/Rates applied to each Location Code. However, the Tax Type/Rates that are listed under each Location Code are not uniquely identified making updating the individual Tax Type/Rates in an accounting package extremely difficult. Since businesses will be required to update their accounting packages bi-annually, it is necessary to uniquely identify each individual Tax Item/Rate (e.g. State, 53 Counties, all Special Tax districts, and 63 Cities). Each individual Tax Item would need to be assigned a unique code in order to facilitate updating systems with changing tax rates. Location Codes would identify which Tax Item was applicable to each.
Problem: Currently, businesses are required to use third-party databases to do address lookups. There are approximately 60 different taxing districts that do not recognize the “hold harmless” designation CDOR grants these third-party databases and the use thereof.
Solution: issue a new rule that holds businesses harmless for use of these databases. This should apply to ALL taxing jurisdictions in the state. The current “hold harmless” law only applies to the 11 of the 73 self-collecting entities. Current law may not allow for this because of the State Constitution, but something must be done to protect small businesses from errors out of their control.
Problem: CDOR does not have a single point of reference for determining tax rates. Currently, there is no easy way for a business to find out what a tax rate is for any particular address without using a third party database.
Solution: CDOR should seek to develop their own boundary database that allows businesses to look up tax rates for their customers. Forcing small businesses to use third-party applications should only be a temporary solution while an official state-run system is developed.
Jon Kamm
