Colorado’s proposed regulations on collecting local sales taxes are threatening many small businesses that have found no way to comply. Denver Post, “Small businesses brace for Colorado’s new online sales tax rules some say could put them out of business,” Nov. 3, 2018.
How will these changes affect you and your business? Have you found a solution, or will the costs of in-state online sales exceed the benefits? Please let us know how you are responding and how costs of compliance will affect your business. firstname.lastname@example.org
Here are details on the proposed regulations, under “emergency regulations.” https://www.colorado.gov/pacific/tax/tax-regulations
“The Department plans to hear these rules at a permanent rule-making hearing on November 30, 2018; however, we want to solicit feedback on these regulations before we move forward with permanently adopting these rules. If you have comments or suggestions on these rules, please email those to email@example.com by 5:00 PM on November 30, 2018.” Ideally, submit your comments before the November 30 public hearing.
If you submit comments, please share them we us at firstname.lastname@example.org. Below are comments Estes Park EDC submitted prior to the October 30 public hearing being cancelled. We are solely concerned with the impact of these rules on Colorado in-state sales tax collection. We are learning more each week. We are learning more each week. We will revise and update these comments to ensure they are accurate and clear, so your input is important to us.
Comments to Colo. Dep’t of Revenue
The Estes Park Economic Development Corporation (Estes Park EDC) hears from our local businesses on a variety of the challenges they face. In the past couple of weeks, the proposed Sales Tax Regulation Changes have emerged as a substantial threat to numerous small businesses in Estes Park. Quite simply, it is unmanageable for a small business to collect sales taxes for every local jurisdiction in Colorado.
The GAO estimated that “state and local governments could gain from about $8 billion to about $13 billion in 2017 if states were given authority to require sales tax collection from all remote sellers. This is about 2 to 4 percent of total 2016 state and local government general sales and gross receipts tax revenues.” The same GAO study estimated that overall business compliance costs for remote sales tax collections would range from 13.0 to 16.4 percent of total revenue collected. See GAO, “Report to Congressional Requesters: Sales Taxes, States Could Gain Revenue from Expanded Authority, but Businesses Are Likely to Experience Compliance Costs,” at highlights cover page (GAO–18–114, Nov. 2017) (https://www.gao.gov/assets/690/689187.pdf). The percentage costs imposed on small businesses would be higher.
In Colorado there are 72 cities or towns who, as home rule municipalities, collect their own sales tax. Each one of these municipalities has separate rules regarding sales tax licensing and remittance requirements. The proposed regulations in no way address collection of sales taxes by these jurisdictions, meaning that the proposed rules do not reduce the burden on Colorado small businesses. Based upon the existing information booklet, licensing fees alone for a Colorado business selling into these local jurisdictions would exceed $1,200 per year.
For jurisdictional reasons, in compliance with Wayfair decision, the regulations provide that out of state businesses are only required to collect and remit Colorado local sales taxes if: “in the previous calendar year or the current calendar year: (A) the retailer’s gross revenue from the sale of tangible personal property or services delivered into Colorado exceeds one hundred thousand dollars; or (B) the retailer sold tangible personal property or services for delivery into Colorado in two hundred or more separate transactions.”
The current proposed regulations do not create a level playing field between in-state and out-of-state businesses. There is no similar limit that pertains to local Colorado retailers that rely primarily on their in-store sales, tied to a specific physical location. Since the burden of complying with 75 Colorado-based jurisdictions is substantial, this is an inequitable burden on Colorado small businesses, and favors out-of-state businesses. If a similar threshold were adopted for Colorado businesses, it is likely that many small retailers in Estes Park would be exempt from collection for being under the $100,000 threshold. Please consider that a much higher threshold would be reasonable for all small businesses. See GAO Report, pages 25-26.
Although the Wayfair decision apparently approves it, the 200 transactions threshold available to out-of-state retailers would still be onerous both for out-of-state and for Colorado retailers, such as those in Estes Park, whose transactions are frequently less than $100 or even $50. It would not be a sufficient exemption for small businesses.
Without the ability to comply on their own, small businesses will be forced to use online platforms such as Amazon to sell their products online, sending substantial additional revenue out of state and imposing higher direct costs on Colorado small businesses.
In short, the Department of Revenue is imposing a substantial regulatory burden that will shut small Colorado retailers out of the online sales business—or force them to incur the cost of using out-of-state national sales platforms to make Colorado sales. The time for compliance is also very short.
I understand the desire to legally increase sales tax revenue. Nonetheless, as the National Taxpayers Union has commented to Congress, “billions of dollars in interstate commerce and millions of small business people face the threat of back-tax bills, complicated collection obligations, and nationwide tax and audit responsibilities simply for having the temerity to use the internet to reach buyers.”
In the long term, undermining small business online sales in Colorado likely will be a detriment to municipalities that depend upon sales tax receipts from their Main Street retailers.
Thank you for your consideration of these written comments.
Estes Park EDC
Please feel free to contact me or Vice President Adam Shake directly on this issue.