May 2010 Newsletter - Guest Article by Patti Arthur
A Twist in the Tax Tale for Online Purchasers
A new Colorado law requires out-of-state retailers to inform their Colorado customers they are now responsible for payment of sales tax on their purchases. These retailers are also required to submit separate annual reports to the Colorado Department of Revenue detailing the name, address and total amount paid for items by each individual Colorado purchaser. Out-of-state retailers must also submit a “1099”-style annual statement to each Colorado purchaser detailing the dates of purchases, amounts paid, and the “category” of purchase so purchasers can remit the tax to Colorado.
This new law goes far beyond “internet sales tax” laws recently enacted in New York, North Carolina and Rhode Island. And while this new law mainly targets out-of-state retailers, it also poses significant problems for Colorado purchasers.
What exactly does this mean for Coloradans who make online, telephone, catalog or other direct-marketing type purchases? It means they must now total up and remit sales tax to the state for normally taxable purchases if the tax hasn’t already been collected by the retailer, as it would if you bought your item at a brick-and-mortar shop. The new law requires the purchaser to do this via a state “Sales or Use Tax Return”. Say goodbye to tax-free internet, catalog and telephone purchases.
The new requirements were meant to equalize the disparity between online or catalog sellers who don’t normally collect sales tax and the brick-and mortar shops that do. But it raises more questions than it answers and it is much more complex than can be covered here.
Some questions:
What about my privacy as a purchaser? Does the state really need to know what I bought online this year and how much I paid?
I’m a frequent online buyer of items I can’t purchase locally. How am I supposed to keep records of all my purchases from online retailers if those retailers don’t know about or follow the new Colorado law?
The new law doesn’t compel out-of-state retailers to collect the tax or even supply all this information to me or the state, although it fines them $5 or $10 dollars for each non-compliance instance. Will the state come after me if they don’t supply the correct information to me or the state and if I don’t remit the tax? What is my potential liability?
What about local taxes? How can an out-of-state retailer keep track of all local taxing jurisdictions? In Colorado alone there are over 280 local taxing entities. Must I keep records for this as well?
How can the Colorado Department of Revenue possibly enforce this new law and how much will it cost taxpayers?
Most of the articles and information you find on the web about this topic specifically address the burden and effect on out-of-state retailers. But there is a much darker side to this new law in that it places tax payment and recordkeeping issues on Colorado purchasers as well.
There are many unanswered questions about this new law, including its constitutionality in light of an earlier US Supreme Court decision addressing a similar matter. For more detailed information, please call your CPA or tax advisor.
Patricia J. Arthur
P.O. Box 28
Salida, CO 81201