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System Analysis, Design and Support

Happy New Year! The Sales Taxman Cometh.

Major changes to Sales Tax Collection rules went into effect December 1, 2018. Bottom line is that the State has made it extremely difficult for me to deliver goods to your place of business. Instead of being able to deliver the goods to you, I will have to record the point of sale at my Satellite Office in Englewood or my office in Brighton. This location will be listed as the “Ship To” on your invoice. The good news is the Tax rate for my satellite office is only 4.25% so most of you should see little change in the cost of goods. I apologize for the inconvenience but you can thank governmental bureaucracy for this.

Here is some background (in a nutshell). Prior to December 1, I have been required to collect sales tax based on the taxing district we had in common between my business location in Brighton and where you took possession of the goods. If I delivered goods to someone in Brighton, I was required to collect sales tax for Brighton City, Adams County, RTD/CD (special districts) and State Tax for a Total of 8.5%. If I delivered goods to someone in Denver, I would collect RTD/CD and State for a total of 4%, if I delivered goods to Loveland, our common taxing district would be just State Tax of 2.9%. That was not too difficult to work with; it meant that customers would fall into 1 of about 5 different tax rates/groups.

After the recent ruling by the U.S. Supreme Court on Wayfair vs. SD (some call it the Amazon Tax) the State of Colorado wasted no time taking the most complex sales tax system in the US and made it a hundred and fifty times worse! As of December 1, I must collect sales tax based on the destination (the point you take possession of the goods). This means that I have to keep track and collect tax for about 762 different tax rates/locations. It is necessary to utilize a 3rd party geographical database to determine what taxing district customers are located in (a single zip code could be located in 6 different taxing districts). In addition to collecting and submitting sales tax to the State, I would have to maintain sales tax permits for every home rule city I would deliver to. For my business, this would require that I maintain a sales tax license for about 30 out of the potential 76 self-collecting home rule cities and file individual sales tax returns with each (not to mention having to pay each of these taxing entities separately)! I have estimated that it would cost my business an additional $4000/year for the additional sales tax licenses and to have my accountant file all the necessary paperwork. That is equivalent to the amount of Sales Tax I collect in a year! Bureaucracy at it’s finest!

The State provided a waiver for businesses to comply with this new law by May 1, 2019; however, delaying the compliance date does not fix the underlying problem. The problem is rooted in the State Constitution that established home rule cities – thus it will be some time before the problem is rectified. I have studied the problem, talked to tax professionals, written my state representative and they are aware of the problem – my only viable option is to require customers to pick up goods. Please call me and we can discuss this further.