The Data and Marketing Association (DMA, formerly Direct Marketing Association) and the Colorado Department of Revenue reached a settlement agreement over the State’s Notice and Reporting Requirements imposed on out-of-state retailers who are not required to collect tax on sales to customers in Colorado. The legislation, which was originally enacted in 2010, requires out-of-state retailers to:
- Provide a transactional notice to purchasers regarding their obligation to self-report and pay use tax on the transaction;
- Provide an annual summary to purchasers with over $500 or more in calendar-year purchases regarding their obligation to self-report and pay use tax on the transactions;
- Provide an annual Customer Information Report to the Dept. of Revenue listing their customers’ name and their purchases during the year. This requirement only applies to retailers with over $100,000 or more of annual Colorado sales.
In February 2016, after years of federal and state court proceedings, the U.S. Court of Appeals (Tenth Circuit) reversed a lower court’s ruling, finding that Colorado’s notice and reporting requirements did not violate the Commerce Clause. After the DMA’s petition for certiorari was denied by the U.S. Supreme Court in December, the matter was finally resolved.
As part of the Settlement Agreement reached with the DMA on February 22nd, the Colorado Department of Revenue agreed to not start the enforcement of the notice and reporting law until July 1, 2017, as well as waive penalties for non-compliance prior to this date. Out-of-state retailers will be required to provide transactional notices to purchases starting July 1st, provide an annual summary to purchasers with over $500 of purchases by January 31, 2018 and provide the Department of Revenue a Customer Information Report by March 1, 2018. While not required to include any transactions prior to July 1, 2017 on either the annual summary to purchasers or the Customer Information Report, the Department of Revenue encourages retailers to include these purchases in an effort to “facilitate customer compliance.” Penalties will be waived for retailers who decide not to include purchases from the first six months of 2017. See the full-text of the Settlement Agreement here.
Colorado finally gets to claim victory in their multi-year fight over a law that essentially forces out-of-state retailers who presumably have no connection with their state, to choose between voluntarily collecting sales tax when they legally are not required to, or turning over information about customers and their purchases to state taxing authorities, while bearing the burden of increased administrative responsibilities, on behalf of a state where they have no connection – property, employees or physical presence, under the threat of penalties.
It is still unclear how Colorado intends to enforce penalties on out-of-state retailers who are not located within their borders. Expect the Department of Revenue to issue more guidance on this in the coming months. On the heels of this victory, several states have introduced similar notice and reporting requirement legislation this year, in addition to the handful of states that have previously enacted laws similar to Colorado’s.
If you have any questions about this or other SALT issues, please email Tom Mazurek at tmazurek@tsacpa.com. For additional State and Local Tax insights and resources, or to subscribe to our quarterly newsletter, visit tsacpa.com.
