A Colorado Senate bill would require the Department of Revenue to create a centralized remittance system to collect sales taxes from remote sellers.
The bill, S.B. 6, sponsored by Sen. Angela Williams (D) and Rep. Tracy Kraft-Tharp (D), also would require the DOR to work with stakeholders to develop the scope of the work for such a system.
Colorado, with its 71 home rule cities and nearly 300 taxing authorities, has one of the most complex tax systems in the country. The legislature's Interim Sales and Use Tax Simplification Task Force — chaired by Kraft-Tharp — met several times last year after the Supreme Court's South Dakota v. Wayfair Inc. decision, to discuss how to require remote sellers to collect sales taxes within the confines of the Colorado Constitution.
According to S.B. 6, home rule cities could elect to use the centralized system to "protect the important legal authority of such entities" under the constitution. The bill does indicate, however, that the legislature's intent is for some home rule cities to voluntarily participate in the centralized system at first and for all 71 to voluntarily participate within three years.
Kevin Bommer, deputy director of the Colorado Municipal League, told Tax Notes January 7 that he expects self-collecting municipalities to test the viability of the remittance portal before joining. Bommer, who was part of the task force, said the DOR has started discussing the scope of the work but won’t be able to issue a request for proposals without appropriated funds.
“We’ll see if a bill passes, and if it progresses towards an RFP, but it remains to be seen whether the portal develops in a timely manner,” Bommer said.
The DOR in December extended the grace period for remote sellers to comply with emergency regulations requiring them to collect and remit sales taxes. The automatic reprieve deadline was pushed back from March 31 to May 31 following concerns by the state’s business community and lawmakers. Although the centralized remittance system could be in place before that deadline, Bommer says he doubts that any self-collecting municipality would commit to the portal right after its introduction.
However, he did say that the league and self-collecting municipalities are committed to finding the “most effective and easiest way for businesses to collect and remit that doesn’t impair their constitutional home-rule authority” or other issues related to local control.
The DOR's December 6 news release on the grace period extension also requested that "businesses with the sophistication and capability to collect and remit sales tax on internet sales based on where the good or service is being delivered do so as quickly as possible in advance of the May 31, 2019 enforcement deadline." According to Bommer, that could cause an even bigger legislative headache. “That actually will be something that requires much more legislative attention than the RFP bill because it will affect every business in Colorado,” he said.
Bommer dismissed concerns that Colorado would become a litigation hot spot for remote seller lawsuits against the state for noncompliance with the Wayfair ruling. “If we have a single point of remittance that is easy to participate in, that works the same for in-state business as out-of-state businesses, then I don’t think we’re going to have any issues with anyone wanting to litigate,” he said.
He did concede that remote vendors could take issue with Colorado’s lack of a unified rate or base, but reiterated that a centralized remittance system should be enough to satisfy the Wayfair ruling.