New laws aim to simplify Colorado’s “insane” sales-and-use-tax system

Colorado state Rep. Rick Taggart speaks about a package of sales-tax simplification bills on the House floor in April as cosponsoring Rep. Cathy Kipp listens.

Small Colorado retailers got a boost from state-government leaders this week, as Gov. Jared Polis signed into law the last of five 2024 bills aimed at making the process of calculating and remitting sales taxes a little bit easier.

All the bills seek to improve access to the state’s Sales and Use Tax System, launched four years ago as a one-stop portal through which businesses that ship goods across the state could calculate tax rates for the goods’ destinations and submit all tax payments. And state officials and legislators who have supported the SUTS launch hope the improvements can get more businesses to use the portal and convince the remaining holdout cities to accept tax payments this way as well.

Even with the latest improvements, the work of the legislative Sales and Use Tax Simplification Task Force isn’t done, as one of the bills expands its scope to consider whether lodging taxes could be submitted in the same way. But bill backers believe the quintet of new laws represent a milestone in the seven-year rollout of the system in which they have attempted to address some of the biggest concerns reported by business owners since it went live to the public.

“We have an insane system of sales and use tax in this state,” Sen. Janice Rich,  a Grand Junction Republican and former Mesa County treasurer, said before casting votes to back three of the five measures in the Senate on Feb. 21. “This (SUTS) system makes it easy on businesses to figure out what they owe.”

Why the sales-and-use-tax simplification is needed

The insanity to which Rich referred is the overlap of county, municipal and special-district boundaries that creates about 700 different taxing districts in Colorado. After a 2017 U.S. Supreme Court decision let states collect sales taxes from out-of-state e-tailers that ship goods within their boundaries, Colorado changed to a destination-based system in which retailers pay taxes based on rates applicable to the addresses where they send each item.

Legislators developed SUTS to make it easier for small retailers to comply with the law and added provisions in recent years, including one to stop cities from charging businesses without physical locations in their borders for a business license just to remit their taxes. But as of one year ago, the Colorado Department of Revenue reported only 15,993 of the state’s 70,000 registered businesses had signed up on SUTS — a sign the system remained too cumbersome and may be discouraging some small retailers from remitting sales taxes.

Colorado state Sens. Jeff Bridges and Kevin Van Winkle explain their sales-tax simplification bills to the Senate.

Hence, the package of bills was developed. The five bills — all sponsored by Democratic Sen. Jeff Bridges of Greenwood Village, Republican Sen. Kevin Van Winkle of Highlands Ranch, Democratic Rep. Cathy Kipp of Fort Collins and GOP Rep. Rick Taggart of Grand Junction — address concerns in different ways.

What the bills do

  • House Bill 1041 raises from $300 to $600 the maximum amount of monthly taxes that a business must collect before it is required to remit the taxes monthly rather than quarterly. It also prohibits cities that don’t participate in SUTS from being able to collect sales and use taxes from a retailer without a physical presence in the state unless that retailer submits those taxes voluntarily.
  • HB 1050 allows the SUTS Task Force to consider whether to expand SUTS to local lodging taxes as well as sales and use taxes.
  • Senate Bill 23 holds harmless retailers who remit taxes to the wrong taxing district or districts because they receive bad information from a state Geographic Information System on exactly where an address is located.
  • SB 24 bars cities, if SUTS is expanded to collect lodging taxes, from requiring that intermediaries or marketplace facilitators submit information beyond tax collections — such as demographics of guests, for example — on tax-collection forms.
  • SB 25 updates and simplifies sales-and-use-tax collection statutes in several ways, including establishing uniform dispute-resolution processes for tax submissions. It also requires that cities offering vendor fees — money given back to retailers to encourage them to remit taxes — uniformly define those fees as percentages of their tax submissions rather than set amounts of money that can make them harder to calculate.

Accountants, business owners support sales-and-use-tax reform

While none of the measures is a panacea on its own for small businesses, each brings some unique benefits.

Raising the monthly-payment threshold in HB 1041 boosts SUTS participation by ensuring businesses won’t spend more filing taxes than they make in taxable revenue each month, said Michael Gifford, Associated General Contractors of Colorado advocacy director.

Michael Gifford, advocacy manager for Associated General Contractors of Colorado, speaks at a January council meeting at the Colorado Chamber of Commerce.

And holding small business owners harmless for payments sent to the wrong taxing districts because of the state’s error also will encourage firms to sign onto the system, said Lexi Torres, senior tax manager with Moss Adams. Local governments still can demand businesses redirect those payments to them, but they can’t penalize those businesses with late fees under SB 23.

Municipal leaders remain concerned about some bills

“The sales-and-use-tax landscape in Colorado is very cumbersome for businesses that operate across local boundaries,” Torres, a member of Simplify Colorado Sales Tax coalition, told the House Finance Committee on April 4. “Most businesses want to do the right thing, and the mitigation of risk is key.”

The biggest opposition came from the Colorado Municipal League, which had concerns about cutting off cities that don’t participate in SUTS from collecting taxes from out-of-state retailers and about SB 24 setting statewide standards for lodging-tax collection. Because lodging tax intertwines with licensing and regulation and has implications beyond local revenue, cities must be able to ask questions on tax forms to ensure lodging providers comply with local law, legislative & policy advocate Elizabeth Haskell told legislators.

Polis’ final action on the package came on Tuesday, when he signed HB 1050 administratively. The Democratic governor has until Friday to sign or veto bills passed during the 2024 session, which adjourned on May 8.