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New Colorado Legislation Broadens Sales Tax Nexus


6/25/14

Synopsis

Recently signed Colorado legislation expands the definition of  “doing business” for sales tax purposes and shifts the burden to the taxpayer to prove that it is not subject to Colorado’s sales tax provisions.  

Issue

On June 6, 2014, John Hickenlooper, the Colorado Governor, signed into law House Bill 14-1269 (HB 14-1269), also known as the Marketplace Fairness and Small Business Protection Act, pursuant to which a retailer will now have to prove that it does not have physical presence in Colorado.

Under the law in effect prior to this enactment, the Colorado Department of Revenue, generally, had the burden of proving that a retailer had a physical presence in the state. The new law creates a rebuttable presumption that a taxpayer, if certain requirements are met, has a physical presence in Colorado for sales tax purposes and shifts that burden to the taxpayer to prove that it is not subject to Colorado’s sales/use tax collection and reporting provisions. Note that certain taxpayers are not presumed to be doing business in Colorado, including:

  • Out-of-state taxpayers contracting with a third party who will only perform advertising services in Colorado;
  • Out-of-state taxpayers contracting with an  “affiliate marketing” company based in Colorado who will solicit on-line sales; and
  • Small businesses with cumulative gross receipts of less than $50,000 of annual sales in the state.

The Marketplace Fairness and Small Business Protection Act is effective July 1, 2014.

What Does CohnReznick Think?
Colorado’s approach to expanding its “doing business” rules is interesting in that it does not go as far as many other states have in expanding their “doing business” provisions. Taxpayers that have sales to Colorado customers should review these provisions to determine whether, and if so how, these new provisions impact their Colorado sales tax position.

Contact

For more information, please contact Patrick Duffany, Partner and State and Local Tax Practice Leader, at 860-368-3607 or Scott Smith, Senior Manager, State and Local Tax Practice, at 973-364-7720.

To learn more about CohnReznick’s State and Local Tax Practice, please visit our webpage.


Circular 230 Notice: In compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing, or recommending to another party any tax related matters.

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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