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Colorado Will Enforce Its Use Tax Notice and Reporting Law Beginning July 1, 2017


3/29/17
 
Synopsis
 
Recently, the Colorado Department of Revenue (Department) and the Data & Marketing Association (DMA, formerly the Direct Marketing Association, Inc.) reached a settlement agreement concerning their long-standing court battle regarding Colorado’s law requiring out-of-state vendors to report use tax information to the state. The settlement agreement waives any and all penalties for noncompliance with Colorado’s notice and reporting provisions until July 1, 2017. 
 
Colorado’s Notice and Reporting Law
 
Colorado’s law requires non-collecting retailers who are: (1) selling taxable goods to Colorado customers; (2) making at least $100,000 in total gross annual sales; and (3) not collecting and remitting Colorado sales tax on such sales to provide information to both the retailer’s customers and the Colorado Department of Revenue:
 
Transactional Notice: Colorado customers must be notified that use tax is due on certain purchases from the retailer and that the customers are required to file a use tax return.
 
Annual Purchase Summary: A year-end summary of information must be provided to Colorado customers making purchases of more than $500.  The annual purchase summary must include the total amount paid to the retailer by the customer, purchase dates, categories and amounts of the various purchases.
 
Customer Information Reporting: Retailers must file an annual statement with the Colorado Department of Revenue detailing the total amount paid for Colorado purchases from each individual customer, regardless of purchase amounts, by March 1 following the close of the calendar year.
 
Dates to Remember 
 
July 1, 2017 – Transactional Notice is required
 
January 31, 2018 – Annual Purchase Summary is due
 
March 1, 2018 – Customer Information Reporting is due
 
We suggest including all 2017 transactions on the annual purchase summary and customer information reporting statements.
 
Litigation History 
 
The U.S. Supreme Court recently declined to hear a challenge to the decision of U.S. Court of Appeals for the 10th Circuit in Direct Marketing Association v. Brohl, Case No. 12-1175 (10th Cir., Feb. 22, 2016).  The 10th Circuit decision upheld Colorado’s use tax reporting obligation that requires out-of-state retailers not collecting Colorado sales tax on Colorado sales to comply with certain Colorado notice and reporting requirements (see our previous alert). However, notwithstanding the actions of the 10th Circuit and the Supreme Court, certain injunctions issued in Federal and State Actions had continued to prevent enforcement of the Colorado use tax reporting provisions.  
 
In order to resolve the injunctions pending in the state actions, as well as the possibility of other Dormant Commerce Clause (DCC) and Non-Dormant Commerce Clause (non-DCC) issues that the DMA could have re-filed, the Colorado Department of Revenue (Department) and the DMA have entered into a settlement agreement pursuant to which: 
 
  • the DMA dismisses, with prejudice, preliminary injunctions and moves to dismiss, with prejudice, all DCC and Non-DCC claims; and 
  • the Department, finding reasonable cause for non-compliance with use tax reporting requirements by out-of-state retailers, shall not require compliance until July 1, 2017 and will waive any and all penalties for non-collecting out-state retailers that did not comply with use tax compliance provisions during the duration of the legal challenges.
 
Colorado’s use tax notice and reporting requirements will be fully enforced on and after July 1, 2017 when penalties for noncompliance will be imposed. For the full text of the settlement agreement, see this link.
 
What Does CohnReznick Think?
 
Now that the legal challenges have been settled, retailers should comply with the use tax reporting obligations regarding sales to Colorado customers. Note that others states, including Oklahoma, Louisiana and Vermont, have similar use tax reporting requirements. Remote sellers (e.g., seller’s selling property to buyers in states in which they do not collect and remit tax) should review the specific facts to ensure they are compliant with retailer remote seller reporting rules.
 
Contact
 
For more information, please contact Krista Schipp, Director, State and Local Tax Services, at krista.schipp@cohnreznick.com or at 818-205-2616; or Scott Smith, Director, State and Local Tax Services, at scott.smith@cohnreznick.com or at 973-364-7720.
 
 
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. 
 
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