Starting July 1, 2017, every sale made to a Colorado resident must be accompanied by a notice indicating the Colorado resident’s obligation to pay the tax due.
New notice and reporting requirements for Colorado sales and use tax were set to come into effect on July 1, 2017, which could have a big impact on wineries making Direct to Consumer (DtC) sales into the state. This post from last year provides some background on the issue.
To briefly summarize, Colorado passed a rule in 2010 requiring any business making retail sales into the state who were not also collecting and remitting sales tax to instead issue
- a notice to their customers indicating the customer may owe use tax on the order
- an annual reminder notice to their customers reminding them of purchases they made, and
- an annual report to the Colorado Department of Revenue (DOR) indicating all sales the business made to Colorado residents.
The rule was held up by challenges in court until last year when the 10th Circuit Court ruled it was valid, allowing the DOR to enforce the rule.
An Update on the DtC Exemption
Last year, when we first reported on this rule, there was a big open question about how to approach sales made at the wholesale level. This was a critical question because the rules contain an exception for businesses that make less than $100,000 in annual sales into Colorado.
The DOR is still drafting final rules, which should include a definitive definition of which sales count towards the notice and reporting requirement. However, in a set of emergency rules published on June 30, the DOR has indicated that only final, retail sales made to an end consumer are affected by this rule. Though this is not yet a finalized set of rules, this does signal how the DOR intends to interpret the rule.
For a winery, this means that only its DtC sales will count towards the $100,000 threshold. Any sales made to a Colorado distributor within the three-tier system are entirely outside of the scope of this notice and reporting rule. We have requested that the DOR clearly spells this out in their final rule-making so that DtC wineries can remove all doubt on this issue.
What Does This Mean For Me?
If you made less than $100,000 in DtC sales last year, and reasonably expect to make less than $100,000 in DtC sales in this year (and future years — your expected sales should be reassessed annually), you fall into the exception area, and will not trigger the notice and reporting requirements.
If you are making over $100,000 in DtC sales in Colorado, the next consideration will be to weigh your options. These notices and reports are only required on businesses that are not themselves collecting and remitting sales tax to the state. This is notable for wineries selling DtC, as Colorado is one of the few states that does not make collecting and remitting sales tax a responsibility under your DtC license.
Wineries may want to consider becoming a sales tax collector for Colorado sales[CS1] . The process for collecting and remitting sales tax may be much less onerous than that for issuing all the notices and reports (remember, you will need to send out reports to your Colorado purchasers who bought more than $500 in goods annually). Plus, assuming this responsibility would relieve your Colorado consumers of their burden to pay use tax.
Becoming a sales tax collector will require registering with the state (you can apply for a “Retailer’s Use Tax Account” as an out of state seller), and filing the DR 0173 Retailer Use Tax Return. ShipCompliant clients already have the required Colorado sales and use tax return available in their account.
If you choose not to become a sales tax collector in Colorado, you will need to comply with the notice and report requirements. The DOR has not yet released exact details on what the reports will look like. But the annual report to Colorado purchasers will be due by January 31, 2018 and the annual report to the DOR will be due by March 1, 2018.
Starting July 1, 2017, every sale made to a Colorado resident must be accompanied by a notice indicating the Colorado resident’s obligation to pay the tax due. This notice must be presented to the purchaser at the time of purchase — though the DOR is still considering whether just including the notice with an invoice is allowable.
This notice must contain notice that:
- you have not collected sales tax;
- the purchase is not exempt merely for being a remote sale;
- the purchaser then has the duty to report and pay tax to the DOR;
- you will provide them with an annual summary of their purchases;
- they should go to the DOR’s website for more information; and
- you will be reporting to the DOR on the total dollar amount of their purchases.
More information about this notice can be found on the Colorado Department of Revenue website, including a copy of the emergency rules here. We will continue to post updates on these and other states’ rules changes on the ShipCompliant blog.