Presenter: Alan Smith – Sales Tax Colorado, LLC

Colorado Sales & Use Tax

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What Makes Colorado So Difficult?

*Varied State vs. Local Laws and Rates*State and State-collected (statutory) cities,

counties and special districts*Home-Rule Cities*Zip Code Issues*Mailing addresses don’t reflect actual

jurisdiction*Address verification needed to determine

correct jurisdictions and rates

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Why Does It Matter?

*Increased Compliance Burden*Multiple Audits*Use Tax*Address example: 30 feet = $8656 vs. $16,159

Result: $7503 reduction in tax obligation!

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Increased Compliance Burden

*Multiple city registrations may be required. *Increased documentation requirements for

local jurisdictions*Zero returns are often mandated.*Zip Code issues lead to errors in

determining the correct city and rate. *Overpayment or undercharging can result

and pose risk audit for both the vendor and the purchaser.

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Multiple Audits

*City & Contract Auditors*Some home-rule cities use their own auditors

while others use contract auditors. * If you are picked for audit by a contract

auditor city, other cities may be invited to participate in the audit!

*The Auditor may notify the State or other cities.

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Don’t Forget About Use Tax

*Use Tax applies to service businesses, medical practices and nearly every other business!*Don’t believe the Myth!

Reality: Internet purchases are not tax exempt.*Rate Differentials*Tax is due if the rate you paid is lower than

your local home-rule city’s rate.*Food for office/ commercial establishment

use

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Nexus

*Wow! This is a tough area for businesses.*Definitions of “Doing Business” vary.*Deliveries in company vehicles and

installations are usually triggers.*Door-step delivery alone in Denver isn’t

sufficient*One installation or more than one delivery

can be considered sufficient.

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Common Differences in Taxability

*Construction*Delivery & Installation Charges*Information Services*Internet transactions*Manufacturing*Medical and Dental Supplies and Equipment*Software

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Construction

*Contractors are often considered the end-user so they are to pay the sales or use tax.*Purchaser’s charitable/ not-for-profit exempt

status may not pass through to contractor.*E.g. Denver taxes contractor’s materials

sold to Denver

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Delivery & Installation Charges

*Cities may consider more than one delivery per year in the company’s own vehicle or just one installation as sufficient for nexus.*For the State, collect only for common

jurisdictions if no business presence in other delivery locations*.*Non-physical location Branch Id’s may be

required by the State*CAUTION: One installation may be

considered sufficient.

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Information Services

*Not a taxable service at the State level1*Some cities such as Denver do tax information

services regardless of format.2

*There may be exemptions for custom reports.* E.g. you hire a marketing company to conduct a

specific survey for you.* Customized reports generated from existing

information is not a custom report.*E.g. – An Advertising Company’s buy of rating

information… customized, but not custom.*CCH or similar tax research resources

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Internet Transactions

*If your state or local jurisdiction has an applicable use tax and would tax the sale at a brick and mortar store, use tax is due on the purchase.*Purchasers need to self-assess and remit

use tax.*State-collected cities’ and counties’ use tax

is limited to motor vehicles and building materials.*Home-rule cities usually do subject internet

purchases to use tax.

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Software & Maintenance Agreements*CO State doesn’t currently tax electronically

delivered software, but did from March 1, 2010 to June 30, 2012.*Cities such as Denver and Greenwood

Village tax software regardless of format.*Mandatory Maintenance Agreements are

generally taxable.*Optional Agreements with even the right to

receive potential upgrades are generally taxable.

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Multi-jurisdiction Filers

*WHAT IS A MULTIPLE LOCATION FILER*A multiple location/jurisdiction filer is any entity filing sales

or use taxes with the Colorado Department of Revenue with more than a single location, either physical or nonphysical.

*WHAT IS REQUIRED OF MULTIPLE LOCATION FILERS* If your business will be selling, renting or leasing tangible

personal property, you must get a sales tax license for each physical location.

* Example: Account 12345678-0001 for Denver, CO *Account 12345678-0002 for Aurora, CO (Non-physical

location – Can be triggered by installation work)

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CO State and Local Audits

*CO State audits cover all DOR tax types *City audits – It’s about documentation.*Local issues focus – more detail required* Invoicing* “Ship To” delivery address vs. “Bill To” address

*Verification* Prove taxable purchased items were never in their

city.* Prove how the delivery was made and where it went.

*Occupation Privilege Tax and other tax types too

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Sales Tax Audit Issues

*Having incomplete sales invoices with no documentation to support pickup or delivery*Not identifying the sales tax charged to a specific

taxing jurisdiction*Not breaking out installation labor clearly on sales

invoices*Not having written training materials regarding

sales tax for personnel to use when preparing sales invoices or ringing up merchandise in a POS system*Not keeping copies of valid resale certificates on file

when customers provide them

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Sales Tax Audit Issues con’t

*No documentation substantiating the reasons for exemption from sales tax (i.e.-resale certificate, letter of exemption, exemption certificate, etc.)*Not understanding how their sales tax system works.

For instance, collecting tax for jurisdictions but not being licensed and not remitting the tax collected* Improper reporting of sales tax to various taxing

jurisdictions*Not reconciling their sales tax liability account each

time they do reporting*Not identifying all delivery locations and the proper

sales tax for each on a sales invoice

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Use Tax Audit Issues*Not identifying all items on invoices that are subject to

use tax accrual based on the taxing jurisdiction’s code(i.e. - items such as fuel surcharges)

*Not accruing Denver use tax on manufacturing equipment in enterprise zones

* Locking in on one vendor for use tax accrual and ignoring new vendors providing the same items

* If providing supplies from a central warehouse, not accruing use tax for those supplies if not previously taxed

*Depending on accounting systems to identify purchase invoices subject to use tax but not verifying the accuracy of the system

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Use Tax Audit Issues con’t

*Remitting use tax accrued to the wrong jurisdiction*Making sure use tax accruals are done based on the

taxing jurisdiction’s tax code for what is taxable*Not accruing use tax on withdrawals of inventory for

their own use*In Denver, not accruing use tax on all costs that are

part of the manufactured cost for items where a retail market exists*Not accruing use tax on leases or rentals of

equipment used in a taxing jurisdiction

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Inter-city Credit Agreements

*What if you paid the wrong city’s tax?*Auditing city may seek the tax directly from

the receiving city*Requires your written authorization*Credit only for tax legally due. *Paying tax to an unlicensed vendor is

between you and the vendor. City will still want their tax!*Caution: Some Cities are limiting their

refund period on intercity claims.

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7. Real life examples, best practices and practical application*TIP: Evaluate and resolve past liabilities,

register and file a return, limit the look-back period, and minimize your future liability.*TIP: Minimize use tax obligations by using your

proper city name in your address and notify vendors of your true location and tax rates.*Are your products and services taxable?*Verify your Colorado customers’ true locations.*Are you prepared for an audit?

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8. Voluntary Disclosure Agreements

*What do you do when you’ve discovered significant prior obligations?*3rd party anonymous voluntary disclosure

may be the right answer.*CO State and Home-Rule cities are

generally willing to limit the look-back to three years and to waive penalties.*If tax wasn’t collected, some are even

willing to have you just register and comply going forward.

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What Accountants Need To Know

*Filing A Return Limits Look-Back.*Are your clients registered in every state and

home-rule city where they’re filing income tax returns, making deliveries or performing installations?

*Are your client’s products and services taxable?*What about Use Tax? It impacts nearly every

business. *Are clients merging, buying or selling a business?*Help clients by letting them know about the

CO State-certified address database. *How do your clients handle exemption certificates?

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Questions?

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Thank you!

Alan Smith

ISALES TAX COLORADO, LLC I 992 S. 4th Ave., STE 100-103 BRIGHTON, CO 80601

email: asmith@salestaxcolorado.com Phone: 303-289-6100

Web: www.SalesTaxColorado.com