Colorado explores sales tax simplification

Colorado has a notoriously complex sales tax system. It allows local jurisdictions to adopt home rule and establish their own sales and use tax systems, affecting specific definitions, licensing requirements, rates, and taxable and nontaxable goods and services. Compliance is difficult for a Colorado-based seller with an obligation to collect in just two locations. For businesses making sales statewide, it is downright onerous: A product that’s taxable in one town may be exempt in another, and rates are all over the map. In the state’s 300+/- taxing jurisdictions, there are more than 700 different sales tax combinations.

Enough is enough. After decades of various attempts to change the system, the legislature has decided Colorado sales tax must be simplified. Thus, the creation of the Colorado Sales and Use Tax Simplification Task Force — “a group of knowledgeable citizens come together to study options of further simplifying our tax system.”

The Colorado Sales and Use Tax Simplification Task Force will be comprised of 15 members and meet at least eight times between now and July 1, 2020, when it is scheduled to sunset. It must “consider the feasibility of potential changes to administration of state and local sales and use taxes” and report its findings to the Legislative Council in November of 2017, 2018, and 2019.

In addition to members of the House and Senate, the task force will be comprised of representatives of the Department of Revenue, the Colorado Municipal League, and the Colorado Counties, Inc. It must also include representatives from the statewide chamber of commerce and a statewide association of small businesses, as well as from the four most populated municipalities. A sales tax attorney and the executive director of the Streamlined Sales Tax Governing Board round out the task force, which will consider the feasibility of the following:

• Having a third-party entity responsible for state or local sales and use tax administration, return processing, and audits
• Making audits of retailers more uniform for all state and local taxing jurisdictions
• Utilizing certified software for sales and use tax administration and collection
• Utilizing a single sales and use tax return for state and local jurisdictions

The Council on State Taxation (COST) calls the task force “a good starting point to provide a simpler and more uniform system that would be easier for taxpayers to navigate, increase compliance, and potentially raise additional revenue by making it easier for remote sellers to collect and remit Colorado’s state and local sales and use taxes.”

Few, if any, oppose the tax force. Even local government officials who typically fiercely defend their autonomy “are at the table saying that some simplification is warranted.” One reason for this widespread approval is the fact that the task force won’t touch exemptions. Should it eventually recommend eliminating exemptions at the local level, it would likely get pushback. Rep. KC Becker believes, “There’s always a vested interest that’s going to be fighting to keep [exemptions] in place.”

There is another reason Colorado could be ready to change its cumbersome sales and use tax system: remote sales tax revenue. Federal efforts to enable states to tax remote sales (i.e., the Marketplace Fairness Act and the Remote Transactions Parity Act) come with a caveat that states simplify their sales and use tax administration. States with complicated systems, like Colorado, would have to enact simplification measures before they could require remote sellers to collect. Learn more about federal efforts to enable states to collect remote sales tax.

Colorado is clearly interested in obtaining more of that revenue. It spent seven years defending a use tax notification and reporting requirement that will make it easier for the Colorado Department of Revenue to go after the use tax it is owed on remote sales (Colorado residents are supposed to voluntarily remit use tax on taxable transactions if sales tax wasn’t collected at checkout). That policy takes effect July 1, 2017.

The Streamlined Sales Tax Governing Board, which will be represented on the task force, has a mission to “simplify and modernize sales and use tax administration in order to substantially reduce the burden of tax compliance.” The 23 full member states in compliance with the agreement’s laws, rules, regulations, and policies are well positioned to collect tax from remote retailers in the event the federal government enacts legislation authorizing them to do so. While Colorado is unlikely to become a member of SST as a result of the task force, it could step closer to a more simplified sales tax system.

Colorado isn’t the only crazy-making state when it comes to sales and use tax. Check out this video to discover more.

photo credit: mockstar Simplify via photopin (license)