United States

Colorado: Use Tax Reporting Requirements Will Become Effective July 1, 2017

Mar 06, 2017
From KPMG TaxWatch

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Recently, the State of Colorado and the Data and Marketing Association (formerly known as the Direct Marketing Association) (DMA) settled a lawsuit stemming from the state’s 2010 enactment of a law requiring certain retailers not required to collect sales and use tax on sales into the state to instead report certain information to the state. As a result of the settlement, Colorado’s use tax reporting requirements, which have never been implemented due to an injunction, will become effective on July 1, 2017. Recall, in 2010 Colorado became the first state to adopt use tax notice and reporting requirements applicable to non-collecting retailers. Shortly after the Colorado use tax reporting law was enacted, DMA filed suit in Colorado federal district court asserting that the use tax reporting requirements violated the dormant Commerce Clause by imposing an undue burden on interstate commerce. The U.S. District Court found for DMA and permanently enjoined the Department from enforcing the reporting requirements. On appeal, however, the U.S. Court of Appeals for the Tenth Circuit held that the federal Tax Injunction Act (TIA) barred DMA from bringing its suit in federal court. After this ruling, DMA refiled in state court and received a state court injunction enjoining Colorado from enforcing the reporting requirements. The U.S. Supreme Court subsequently reversed the Tenth Circuit and held that the TIA did not bar DMA’s action in federal court. On remand to the Tenth Circuit, the merits of the matter were finally addressed and the court ruled in Colorado’s favor, finding that Quill was confined to the collection of use tax and that the Colorado reporting requirements did not constitute an undue burden on interstate commerce. The U.S. Supreme Court declined to review the Tenth Circuit decision, which is binding the Tenth Circuit states, which include Wyoming, Utah, New Mexico, Kansas, and Oklahoma.

Per the terms of the settlement, Colorado will not require compliance with the reporting requirements prior to July 1, 2017 and will waive all penalties associated with any noncompliance prior to July 1, 2017. As a result, non-collecting retailers must begin providing a notice of possible use tax obligations at the time of the transaction for all transactions beginning July 1, 2017. They must also provide the required annual statement to the customer by January 31, 2018 for all purchases made after July 1, 2017, and by March 1, 2018 must provide the required customer information report to the Department of Revenue for purchases after July 1, 2017. The Department will undertake efforts to encourage non-collecting retailers to include purchases prior to July 1 in the required reports.

Numerous states are currently considering legislation that would likewise adopt use tax reporting requirements applicable to non-collecting retailers. In Utah, Senate Bill 83 recently passed the Senate and is pending action in the House.  In other states, bills have been proposed that would adopt economic nexus standards for sales and use tax purposes. Please stay tuned to TWIST for future updates on the quest to overturn Quill.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.