|June 25, 2014|
Previously published on June 19, 2014
On June 6, 2014, Colorado Governor John Hickenlooper signed H.B. 1269, also known as the Marketplace Fairness and Small Business Protection Act, into law. H.B. 1269, which becomes effective on July 1, 2014, expands the array of activities that create state tax nexus for out-of-state retailers, and establishes a rebuttable presumption of sales tax nexus for such out-of-state retailers. As such, these retailers have the initial burden of refuting the law’s application to them, making it more difficult to escape the law’s reach.
Under prior Colorado law, the Colorado Department of Revenue was required to prove that an out-of-state retailer was doing business in the state in order to impose sales tax liability. Hence, H.B. 1269 represents a significant shift in the retailer’s burden of proof. Out-of-state retailers are presumed to be conducting business in the state unless they can demonstrate that “during the calendar year in question, the [retailer] with physical presence did not engage in any constitutionally sufficient solicitation, promotion, or facilitation in [Colorado] to establish or maintain a market in [Colorado].”
Activities within the state that establish the presumption of a retailer’s physical presence in Colorado include:
Maintaining any office, warehouse, storage facility, or distribution center
Using trademarks, servicemarks, or trade names; selling under the business’s name or a similar business name
Delivering, installing, or performing maintenance on tangible personal property
Facilitating a delivery of tangible personal property other than by use of a common carrier
Additionally, any out-of-state retailer contracting with any other individual or entity in Colorado, other than a common carrier, to perform any of the activities enumerated in the list above, will be found to be doing business in the state, and thus subject to sales tax liability. These Colorado entities contracting with the out-of-state retailer may also not sell under the same or a similar business name the tangible personal property or taxable services similar to that sold by the out-of-state retailer without establishing nexus for the out-of-state retailer.
Under H.B. 1269, entities which employ an employee who works from their personal residence located within Colorado will be found to have a physical presence in Colorado. Compounding matters further, one company within a related group of entities operating in Colorado will create sales tax nexus for the entire group of entities in certain circumstances.
H.B. 1269 also establishes sales tax nexus for a retailer when “such retailer enters into an agreement with a [Colorado] resident . . . under which the resident, for a commission or other consideration based on completed sales, directly or indirectly, refers potential customers, whether by link on an Internet web site or otherwise, to the retailer[.]” For this provision to apply, the cumulative gross receipts for Colorado sales from these referrals to the retailer must exceed $10,000 during the preceding 12-month period.
Due to H.B. 1269’s many changes, it would be prudent for any out-of-state retailers having sales into Colorado review their position on collecting Colorado sales taxes if such retailers are not collecting Colorado sales taxes. While certain provisions of H.B. 1269 may not be constitutional, the U.S. Supreme Court has not spoken directly on the methods by which H.B. 1269 seeks to establish physical presence in the state. As such, the entirety of H.B. 1269 is presumed to be constitutional until successfully challenged. H.B. 1269 also provides some indication that Colorado intends to become more stringent in enforcing sales tax obligations on out-of-state retailers.