Colorado Adopts Emergency Regulation to Require Out of State Sellers to Collect Sales Tax

The state of Colorado has issued emergency rules (Regulation 39-26-102 (1.3); Regulation 39-26-102 (9)) that would impose requirement on out of state sellers to collect Colorado.  The collection would be required effective on November 30, 2018.

Regulation 39-26-105(4) provides the following revised definitions that apply in determining who must collect Colorado sales taxes:

(4) Application.

(a) The liability and responsibility imposed by § 39-26-105, C.R.S. and this rule apply to any retailer that has substantial nexus with Colorado and is doing business in this state, as defined in § 39-26-102(3), C.R.S. Retailers are considered to have a substantial nexus with Colorado for sales tax purposes if they meet any of the following criteria:

(I) the retailer maintains a physical presence in Colorado pursuant to §§ 39-26-102(3)(a), (d), and (e), C.R.S.; or

(II) in the previous calendar year or the current calendar year:

(A) the retailer's gross revenue from the sale of tangible personal property or services delivered into Colorado exceeds one hundred thousand dollars; or

(B) the retailer sold tangible personal property or services for delivery into Colorado in two hundred or more separate transactions.

(b) Paragraph (4)(a)(II) of this rule shall not apply in determining a retailer's liability and responsibility for tax pursuant to § 39-26-105, C.R.S. and this rule for any sale made prior to December 1, 2018.

(c) A retailer that has substantial nexus with Colorado as defined in paragraph (4)(a) of this rule is not a “remote seller” as defined in § 39-26-102(7.7), C.R.S. and sales made by any such retailers are not “remote sales” as defined in § 39-26-102(7.6), C.R.S.

The last paragraph is meant to clarify that such sellers are not subject to the information reporting rule for Colorado what is imposed on remote sellers—because they are now required to collect the tax.

While Colorado’s de minimis rule is based on the South Dakota rule, Colorado’s sales tax regime has other features that may bring into question whether this action is protected under the Wayfair decision.

Colorado is not a member of the Streamlined Sales and Use Tax Agreement.[1]  Membership in that group by the state of South Dakota was commented upon favorably by the majority opinion in the Wayfair case.

But the bigger issue for Colorado is the state’s Home Rule standard that allows each locality to impose its own sales tax regime, including providing for different items to be included in the sales tax base.  As the Tax Foundation noted in its reporting on this development:

Colorado’s big problem is that it allows its 349 county, city, and district local sales tax jurisdictions autonomy in administering, collecting, and auditing. Filing is very cumbersome as a result, with the state and local tax base not necessarily adding up on a given transaction.[2]

The article notes that Colorado’s release on the issue was not clear if becoming subject to these rules also triggers the need to comply with the specific rules and filing requirements for those 349 jurisdictions. And that difference could be very significant if Colorado’s regulation is challenged.  As the website goes on to note:

If it’s state and local, which in Colorado means separate tax bases, that goes beyond what Justice Anthony Kennedy wrote was permissible in the U.S. Supreme Court’s Wayfair decision. If Colorado only requires collection of the state sales tax, that is more defensible legally. [3]

[1], September 13, 2018

[2] John Bishop-Henchman and John Buhl, “Colorado Announces Online Sales Tax Collection Starting November 1,” Tax Foundation website,, September 11, 2018

[3] John Bishop-Henchman and John Buhl, “Colorado Announces Online Sales Tax Collection Starting November 1,” Tax Foundation website,, September 11, 2018