by Trent Krassow, ARe, ARM, CMA, EA, MBA
As you may know, there are significant changes coming regarding sales tax collection and reporting in the State of Colorado. These changes will likely require configuration changes to accounting systems.
What is changing?
The Colorado Department of Revenue will soon require businesses making deliveries to non-home-rule cities and counties to collect and remit sales tax, as well as to report on those transactions. This means that for each such city or county to which your business delivers, you will now be required to collect tax appropriate to that jurisdiction and submit a report for each jurisdiction. Prior to the rule change, sales tax only needed to be collected and reported for the jurisdictions in common between the seller and the delivery point, which usually meant either the same city or the state.
What do you need to do?
There are a few steps to take to ensure you are able to comply with the new rules:
Assess deliveries and shipments your business makes:
How many delivery sales do you make in a month? Remember that all deliveries will be subject to local sales tax, not only those that are state collected, unless the home rule jurisdiction specifically excludes this requirement.
To what zip codes did you make deliveries? It is probably best to list these out, and then keep a running total by zip code. If already configured to track this information, your Point of Sale or accounting software may provide a ready report of delivery zip codes for you.
Determine which of these locations for which you are already collecting and reporting sales tax, and then make a list of the locations for which you are NOT currently doing this.
Compare your lists above to CO Form DR1002. See pages 4-7 for state collected cities, and pages 8-10 for Home Rule cities in Colorado that administer their own sales tax.
Get ready to collect and report:
If your Point of Sale or accounting software is not already configured to track the zip codes to which you deliver, you will need to make sure this is set up. In addition to tracking, you need to make sure your software is configured to charge the appropriate sales tax for each location, and then to report on this activity going forward.
For each state collected jurisdiction to which you deliver or anticipate delivering, you will need to set up a “non-physical location” sub-account with the State of Colorado.
Begin collecting local sales tax on deliveries, report these each month using the appropriate non-physical location, and remit the collected tax to the Colorado Department of Revenue.
The state initially indicated that retailers should adopt the new rules beginning 12/1/18. The Department of Revenue has since given guidance that a grace period through March 2019 will apply. Our recommendation is to make the changes now with the intent of being fully compliant for the new year.
For some businesses that only make occasional deliveries outside of their own city, these changes will only require minor tweaks to their sales tax process. However, for businesses that regularly deliver to many different jurisdictions, this rule change may require significant accounting system and process changes. Please let us know if we can be of assistance in making sure your system and process will meet your compliance requirements.
Photo by Agê Barros on Unsplash