My products or services aren't subject to sales tax! ...Are they?
- Your services may be subject to Sales Tax.
- Nearly all businesses are subject to Use Tax.
You should know, Colorado has many home-rule cities with tax laws that differ from Colorado State and from each other. For example, the State doesn't currently tax downloaded, ASP, load and leave or otherwise electronically delivered software, but Denver taxes it regardless of the format. Yep, even accessing cloud computing from Denver is taxable!
When you've been warned, warn your neighbor...in this case about Sales Tax and its often unknown counterpart, Use Tax.
Many businesses don't know about or properly understand their sales tax registrations and collection requirements. Fewer know about or understand their Use Tax obligations.
New Businesses:
The time to find out about what sales and use tax laws will impact you is when you are in the start-up phase. You may be discouraged, but it's better to find out early and comply from day one than to find out during an audit 10 years later. Paying the tax is your customer's obligation, but if you fail to collect and remit it properly, the tax, interest and penalties become your obligation. Accountants often don't handle this area of tax.
Are my products and services taxable?
The common misconception is that services aren't taxable. The reality is that Colorado State along with many others and local home-rule jurisdictions can and do tax some specified (enumerated) services and most tangible products. These vary from state to state and from local jurisdiction to local jurisdiction. Check with your state or Colorado home-rule city and consider the impact on your client's as well.
Even if your home state or city doesn't tax your products or services, your client's tax jurisdictions may. They may be subject to self-accruing and remitting Use tax when the vendor didn't charge sales tax. Click here for a directory of state's and Colorado home-rule cities' sales tax websites: www.salestaxcolorado.com/statetaxdepartment.htm.
Another common belief is that internet sales aren't taxable. The seller may not have an obligation to collect for your state or local jurisdiction, but the products or services may still be taxable and tax would remain due until paid by the purchaser.
What is Use Tax?
Use Tax is generally the tax that's due when sales tax wasn't legitimately charged.
Where do I have to register and collect Sales Tax?
"Nexus" is the industry term for determining whether a state or local jurisdiction can require you to collect Sales Tax in their behalf. It generally comes down to "Doing business" in their jurisdiction, but that leaves a lot open to interpretation by auditors and the courts. There are a host of click-through nexus laws states have recently adopted or proposed. It's a complicated area of the law and warrants further review. Affiliate nexus is another area being aggressively pursued. Fulfillment By Amazon(FBA) is an example of a potentially large obligation to register and collect tax for multiple states and local jurisdictions. A vendor's inventory is stored in Amazon's facilities around the nation and moved at Amazon's will. Owning assets in a state might trigger nexus.
TIP: If you've never filed a Sales or Use Tax return, there's no statute of limitation protection. The auditor can and probably will audit back to day one of business. Do your best to file a return to start the clock and limit the look-back period. (Usually 3 - 4 years)
CAUTION: If you have significant prior obligations, consider requesting a Voluntary Disclosure Agreement through a 3rd party such that you remain anonymous until an agreement is reached. For more on VDA's click: http://www.salestaxcolorado.com/exposureresolutions.htm
I can't cover everything in this blog, but I hope to have helped you become aware of some key issues we see. Ask me any specific questions. I'd be happy to help or point you in the right direction. I'll let you know if it is more involved and would involve our paid consulting services.
This information is provided as a courtesy of Sales Tax Colorado, LLC and cannot be considered complete or comprehensive. Sales Tax Colorado LLC accepts no liability for reliance upon such information.
Alan Smith writes for Sales Tax Colorado and provides sales and use tax consulting services. www.salestaxcolorado.com