Colorado Internet Sales Tax Bill Signed by Governor

Posted on7 CommentsCategoriesAffiliate / Advertising Tax

Performance Marketing Association has just posted:

On Thursday February 25, 2010, Governor Ritter signed into law HB 1193. This bill no longer includes any reference to affiliate nexus or the concept of an advertising tax. The final bill can be found here. It does, however, still impact online retailers, who should consult tax and legal experts.

The bill will become law in just 2 days — on March 1, 2010.

The wording of the Colorado bill is indeed very different from what’s been passed in states of New York, North Carolina and Rhode Island, and thanks to the testimony of affiliate marketers during the hearings, affiliates are not being made the primary object of it. Many of the traditional media channels have picked the news up. The Denver Post, for example, wrote:

House Bill 1193 … originally was intended to tax out-of-state Internet retailers that have “affiliates” in Colorado that market the retailers and direct shoppers to the retailers’ websites.

The hearings on HB 1193 by both House and Senate finance committees generated considerable testimony by business owners whose operations would have been jeopardized if the introduced version had become law. The outcry from these businesses caused legislators to significantly amend the bill, thus saving hundreds of jobs.

The rewrite of HB 1193 illustrates that some legislators did not analyze the potential harmful consequence of this bill to businesses before it was introduced.

Internet sales taxThe rewrite of the bill still affects online businesses. It affects everyone “doing business in this state” by soliciting “business from persons residing in this state and by reason thereof receiving orders from, or selling” to “such persons residing in this state”. The bill prescribes that “each retailer that does not collect Colorado sales tax shall notify Colorado purchasers that sales or use tax is due on certain purchases made from the retailer and that the state of Colorado requires the purchaser to file a sales or use tax return” [underlining mine]. Also, retailers that do not collect CO sales tax “shall file an annual statement for each purchaser to the Department of Revenue … showing the total amount paid for Colorado purchases of such purchasers during the preceding calendar year or any portion thereof.” Read more in the final version of HB 10-1193 here.

Essentially, no Internet shopping is going to be tax-free for residents of Colorado starting from the coming Monday. But since compliance is required of all merchants that sell to Coloradans, all online merchants are affected, and should get ready.

The time is short, and as Melanie Seery has written:

Merchants are urged to retain professional counsel, a sales and use tax attorney or qualified accountant to make educated decision regarding this new law.

I certainly echo her advice.

7 thoughts on “Colorado Internet Sales Tax Bill Signed by Governor

  1. Brian Strahle, a Minneapolis-based tax consultant, has shed some additional light on the compliance requirements imposed by the above-quoted Colorado sales and use tax. When selling to Colorado residents you should be aware that:

    (a) You are expected to notify the purchaser on their invoice that you may include their information in your end-of-year report to Colorado Department of Revenue

    (b) Should your “total gross sales in the prior year” be “less than $100,000” you “shall be exempt from the notice requirement”, but how will you know until the end-of-year results are on your table?

    (c) Non-compliant retailers will be penalized at $5.00 for each invoice

    Read more in Brian’s post here.

    This is definitely a major change on the online retailing landscape, and if you’re trading anything online, you must be aware of it.

  2. Geno,

    Thanks for the mention and the link to my blog. I wanted to clarify the alleged $100,000 gross receipts threshold.

    Colorado’s emergency regulations and the original statute do not agree. Therefore, it is currently unclear if the $100,000 gross receipts exemption exists.

    I udpated my blog post to address this issue.

    If you have any questions, please contact me.

    Thanks again.

    Brian

  3. Of course, the $100K limit and all the fancy wording by legislators to try to make things sound better doesn’t matter to Amazon Associates, as Amazon.com has closed down all Colorado associates accounts.

    Most associates probably don’t make much money… under $1,000/year. But there must be millions of them who will stop paying taxes on this income. And it will be interesting long term to see if this has a negative income effect for the state.

    Virginia, btw, crunched the numbers and decided they’d loose money and dropped similar legislation. And someone wrote me to say that Hawaii revoked a similar ruling as they watched income dropped. Does anyone know if this is true?

    Regards,
    The Harpie

  4. I am new to on line internet sales. I live in the State of Colorado and just put together a website to sell purses. Am I suppose to have a notification on my website that I will be charging internet sales tax due to current legislation that Colorado charges a sales tax of 2.9% and then have it programmed to my shopping cart. Help.

  5. Marlene, another Colorado-based retailer has asked a similar question here. The above-quoted Colorado Internet Sales Tax law has been created to address the question of collecting tax from out-of-state merchants. See more in my and Melanie’s replies to the above-referenced Harmony Scott’s question.

    In short, I do not believe you are required to pub any notice on your website. But do read the above-mentioned comments, and consult with your accountant or tax attorney.

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