Colorado’s labyrinth of sales-tax rules confounds the state’s businesses

Author: Dave Davia - November 26, 2018 - Updated: November 26, 2018

Dave Davia

For months, news reports, candidates and politicos touted the countdown to election day. With the votes cast and results behind us, we can turn our collective attention to another milestone on the calendar that will have a huge impact on our economy – the holiday shopping season. While retailers across the state have been preparing for a busy season, they have also been plagued with a new cabal of bureaucratic red tape that threatens their success and presents an almost insurmountable challenge for many.

Colorado is ranked among the top on so many scales – from a booming economy to quality of life. Unfortunately, when it comes to the sales tax environment, Colorado has received a failing grade. With 683 different tax rates and multiple, overlapping jurisdictions, it’s no wonder.

The sheer volume of different taxability determinations has created an almost insurmountable burden for small business. And just when we didn’t think it could get any worse, it does.

The looming threat stems from new rules for sales tax collection. Following a recent court decision, the Colorado Department of Revenue (CDOR) has issued a new rule that mandates sales tax collections based on a customer’s address. According to CDOR, every product or service sold within Colorado requires the seller to collect and submit sales tax for various jurisdictions regardless of where the seller’s business is located.

Proponents of the new rule cite fairness and leveling the pricing playing field as the goal. For businesses facing compliance, untangling the complex web of taxing jurisdictions and tracking rates is a particularly onerous undertaking. Consider the paperwork alone that a small business will now be forced to track, file and submit. When all of Colorado’s 344 cities, counties and special taxing entities like RTD are layered over one another, the 683 possible sales tax combinations in the state create a complex web for business owners to untangle.

As just one example, consider an IT company. If that company sells a computer to someone in Sheridan, instead of simply collecting state and special district tax, the new rule mandates the business owner will now have to collect the Sheridan city sales tax of 3.5 percent and the Arapahoe County sales tax of 0.25 percent. In addition, the business will be required to purchase a Sheridan sales tax license ($65) and file a sales tax return directly with the City of Sheridan. This is the kind of red tape challenge that makes Colorado businesses less competitive and less successful.

Representing more than 17,000 businesses, the Simplify Colorado Sales Tax Coalition was formed in 2015 to support Colorado’s economy by simplifying the state’s overly complex sales and use tax system. Our coalition is not trying to avoid paying taxes or challenging tax rates. Rather, our mission is to reform Colorado’s excessively complex sales tax system.

Our call to action is to urge a delay of this new rule until CDOR can resolve questions for business owners and help streamline implementation by:

  • Creating a single sales tax license encompassing all 688 taxing entities;
  • Develop capabilities to remit a single return for all included cities and counties; and,
  • Provide a database that accurately shows for any customer address 1) the taxes required for collection at that customer address, and 2) the various sales tax rates that make up the total sales taxes due for a specific address. Without a database of this nature, accurate sales tax collection by retailers is virtually impossible.

While CDOR’s goal of creating a level playing field is laudable, further complicating our sales tax environment is a price too high to pay. Let’s do the right thing rather than the fast thing and take the time necessary to implement fiscally responsible changes that simplify sales tax and improve the competitive landscape in Colorado.

Dave Davia

Dave Davia

Dave Davia, executive vice president and CEO of the Colorado Association of Mechanical and Plumbing Contractors, is a member of the Simplify Colorado’s Sales Tax coalition.