US Colorado clarifies marketplace sales tax liabilities

The US state of Colorado has clarified the marketplace liabilities to collect state sales tax where they are facilitating sales of their third-party sellers. The new rules are applicable from October 2020.

The new rules follow the US Supreme Court ruling, South Dakota vs Wayfair in 2018. This established that state could make out-of-state retailers without any physical connection (nexus) to the state liable for local sales tax collections. Colorado has since fallen into line of taxing based on the location of the customer rather than the seller (if remote, then no liabilities). Colorado is also making marketplaces facilitating out-of-state sellers transactions with local consumer liable to collect the taxes and obtain a retail sales tax license. All businesses with a physical presence in Colorado are required to register then collect and remit sales and use tax. Businesses with no physical presence in the state whose sales into the state during the previous year exceeded $100,000 must also register then collect and remit sales tax.

Colorado has also clarified the physical nexus definitions, in place since before the Wayfair ruling. It restates the ‘doing business’ hurdle for physical nexus, and states that any retailer with a place of business – directly or indirectly – or soliciting trade is liable for sales tax collections.