Sales tax collection for the State of Colorado changed in 2019. At that time, exceptions to destination sourcing were given to small businesses. Destination sourcing means that sales tax is calculated based on the address where the taxable product or service is delivered to the consumer, not on your business location. Businesses with over $100,000 in sales should already be using destination sourcing to determine sales tax rates.
Now that the Geographic Information System (GIS) is online and available for everyone to use, state statute requires Colorado-based businesses using the temporary origin sourcing exception to transition to destination sourcing by 90 days from the date the Department announced that the system was live.
This means that all businesses located within Colorado, regardless of their sales volume, must begin complying with the destination sourcing rules below by October 1, 2022. The Department is not authorized to grant exceptions to this statutory requirement.
General Destination Sourcing Rules
Sales tax is now calculated based on the buyer's address when the taxable product or service is delivered to the consumer. This is called destination sourcing. Destination sourcing is also used when a product or service has a lease/rental agreement with periodic recurring payments.
Businesses will now be required to collect and remit sales tax for all retail sales to Colorado consumers, regardless of the physical location for the business. In general, a retail sale is made at the location to which it is sourced in accordance with the following rules:
- If the purchaser takes possession of the purchased property or first uses the purchased service at the seller's business location, the sale is sourced to that business location.
- If the property or service is delivered to the purchaser at a location other than seller's business location, the sale is sourced to the location the purchaser receives the purchased property or first uses the purchased service.
- If the purchaser requests delivery of the property or service to another recipient (i.e. the purchase is a gift), the sale is sourced to the location the recipient takes possession of the purchased property or first uses the purchased service.
If a sale cannot be sourced using the preceding rules, section 39-26-104(3)(a), C.R.S., provides additional guidelines for sourcing retail sales based upon the seller's records, the purchaser's payment instrument, or the location from which the property was shipped. These sourcing rules do not apply to leased property. See Department publication Sales & Use Tax Topics: Leases for sourcing rules for lease payments.
Frequently Asked Questions
Retailers using third-party databases previously certified by the Department will need to ensure that their providers are using the most recent Geographic Information System (GIS) data in order to continue to be held harmless for errors and omissions in the jurisdictions returned by an address search. The certifications for all other databases expired on June 30, 2021.
No, exceptions to destination sourcing that were given to small businesses in 2019 will no longer be available as of October 1, 2022. The Department is not authorized to grant exceptions to this statutory requirement.
This means that all businesses located within Colorado, regardless of their sales volume, must begin complying with the destination sourcing rules by October 1, 2022. Destination sourcing means that sales tax is calculated based on the address where the taxable product or service is delivered to the consumer, not on your business location.
The Geographic Information System (GIS) can help you comply with this statutory requirement. It is free to use, and provides sales tax information by address or map location. For more information, visit the GIS Help web page.
These rules will apply to sales occurring on or after October 1, 2022. A sale occurs when a seller transfers goods to a buyer for consideration. The Department generally relies on the invoice date as establishing the date when the good is transferred to the buyer. This means that, in general, to sales invoiced on or after October 1, 2022, but not to sales invoiced prior to October 1, 2022.
In each scenario, the sale would be sourced to the customer’s home, because that is where the customer takes possession of the property. You would use the tax rate for their home address to determine what tax rate to use. The Geographic Information System (GIS) can assist you in determining the tax rate.
Possession by a shipping company on behalf of the customer does not constitute receipt, so the tangible personal property would not be considered received at your facility. The sales tax due will depend on where the customer takes possession of the tangible personal property, which in this case, is at their delivery location.
Motor vehicles are tangible personal property and are subject to Colorado sales and use taxes. However, special rules apply to the taxation of motor vehicles in Colorado. Additionally, the manner in which a motor vehicle is taxed varies depending on whether it is leased or purchased. Review the Motor Vehicles - Sales Tax Topic guidance publication for more information.
Transactions that take place within your store, where the customer receives the product at the time of purchase, are handled the same way as before. You would use your store’s physical location to determine the sales tax rate.