Update | New Colorado Sales Tax Reporting Requirements Could Affect Wineries

A Colorado law (C.R.S. 39-12-112.3.5), which imposes notification and reporting requirements on businesses that do not collect sales taxes on their sales in Colorado, was recently upheld by the 10th Circuit Court of Appeals. This law affects all “non-collecting retailers” that sell more than $100,000 per year in Colorado, a group that includes some out-of-state wineries making direct-to-consumer (DtC) sales into Colorado.

Before anything else, you should be aware that this law will only affect wineries that have more than $100,000 in sales in Colorado in a year. If your sales in Colorado are below this level in one year, you will have no obligations because of the way the regulations were established.

If you do make more than $100,000 in sales each year in Colorado, though, this law creates several new onerous reporting requirements, which you should be aware of. These requirements are to:

  1. Notify customers at the time of purchase that tax is due, and that it is the customer’s duty to file a sales or use tax return for the purchase
  2. Report to customers annually what purchases they have made over the last year
  3. Report annually to the Department of Revenue (DOR) their sales into Colorado over the last year

The purpose of these reports is to make sure that Colorado consumers know that tax is due on their purchases, and that they must file a sales or use return on those purchases. For a more complete discussion of this law and its specifics, please read our post on the Taxify blog.

These requirements do only apply to “non-collecting retailers.” These are businesses that make retail sales (i.e., final sales to customers) in Colorado, but that don’t collect tax on these sales, generally because they operate outside of Colorado. This would include out-of-state wineries selling DtC into Colorado, if they reach the $100,000 threshold in one year.

But because the law only applies to non-collecting retailers, this creates a clear alternative to filing these reports: register and begin collecting tax on DtC sales in Colorado. Though Colorado does not require wineries making DtC sales to collect sales tax, wineries could consider whether it would be preferable to filing these new reports. Many other states already require the collection of sales tax on DtC sales; adding another state where a winery collects sales tax may be easier than complying with these new, onerous reporting requirements. However, such a decision should be made only after careful consideration, which could include consulting with your personal legal representative.

The 10th Circuit Court’s decision is still very fresh, and it will take some time for the specifics of the law to come out. The DOR will need to develop the reports, and develop policies on how it will enforce the law. There is no need for you to take immediate action, but you should be aware that this law exists, and if you make more than $100,000 in sales per year in Colorado, your tax obligations in the state could change soon.

9 Comments

  1. Gary Emmerich

    so when does this decision on a wineries part about collecting sales tax need to be done?

    Reply
  2. James

    Thanks for the follow-up, whew!

    Reply
  3. Christine Foppiano Haun

    Thank you for the note. I am curious how Colorado defines “100,000 in sales per year”. We are close in my view and I view sales revenue as “gross less discounts applied”. Also, is the year calendar, or fiscal.

    Many thanks.

    Reply
  4. Daphne

    Can you clarify whether the $100,000 sales threshold is only Direct to consumer sales or do Wholesale sales count toward that threshold also?

    Reply
  5. Steve

    The long arm of the tax man is at hand. This is not much different than 3 tier distributors.
    Don’t add value to the tariff but still get the tariff.

    Reply
  6. Alex Koral

    Hi everyone, thanks for all your great comments and questions; I hope I can clarify a couple points here. First, the “year” period is the calendar year, not a fiscal year. Second, the question of how Colorado defines “sales” is one of the open questions we are still working with the Department of Revenue to resolve. The rules as written use the term, “Total gross sales,” adding that “the term total gross sales means the total sales of goods. The term shall not include sales of services. The term shall include all sales of goods made by all entities controlled by or under common control with the noncollecting retailer.” As has been pointed out, this could use some clarification, especially as it relates to sales by wineries. (For instance, whether this means only direct sales, or would include wholesale sales, is a key question that needs to be determined.) We are working with the Department to clarify this, and will continue to make updates as we learn more.

    Reply
    • katie

      Hi Alex,
      Can you clarify if this will apply to orders ALREADY placed prior to July 1, 2017?

      Reply
      • Alex Koral - Product Compliance Manager

        Hi Katie,

        Thanks for the question. This rule became effective on July 1, 2017, so what it requires you to do should only apply to orders occurring after that date–that is, you should only need to send out notices (or collect and remit sales tax) for orders made after July 1. For the purpose of determining your threshold (how close you are to the $100,000 mark), that will look back to sales prior to that date.

        Reply

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