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Colorado Sales & Use Tax

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Presentation on theme: "Colorado Sales & Use Tax"— Presentation transcript:

1 Colorado Sales & Use Tax
Presenter: Alan Smith – Sales Tax Colorado, LLC

2 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 Sales Tax Colorado, LLC July 17, 2014

3 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! Sales Tax Colorado, LLC July 17, 2014

4 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. Sales Tax Colorado, LLC July 17, 2014

5 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. Sales Tax Colorado, LLC July 17, 2014

6 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 Sales Tax Colorado, LLC July 17, 2014

7 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. Sales Tax Colorado, LLC July 17, 2014

8 Common Differences in Taxability
Construction Delivery & Installation Charges Information Services Internet transactions Manufacturing Medical and Dental Supplies and Equipment Software Sales Tax Colorado, LLC July 17, 2014

9 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 Sales Tax Colorado, LLC July 17, 2014

10 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. *FYI Sales 62 Guidelines for Determining When to Collect State-Collected Local Sales Tax DELIVERIES OF GOODS Local city and county sales taxes are not collected when the retailer or his agent delivers tangible personal property, via the retailer’s vehicle, to a destination outside the boundaries of the vendor’s local taxing jurisdiction(s) or to a common carrier for delivery outside the boundaries of the vendor’s local taxing area(s). Delivery of the tangible personal property into another local taxing area does not require the vendor to collect the local sales taxes of the delivery area if the vendor does not have a business presence there. However, use taxes are due for deliveries made into special districts that impose a use tax. The use tax should be reported on the Retailers Use Tax Return (DR 0173). See DR 1002, Sales/Use Tax Rates to determine which special districts have a use tax. Sales Tax Colorado, LLC July 17, 2014

11 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 Colorado only impose sales and use taxes on specified services. Information services are not taxable. ( Sec , C.R.S ; Reg. Sec ) 2. City and County of Denver, Colorado TAX GUIDE Topic No. 42 INFORMATIONAL SERVICES The DRMC imposes sales/use tax on the sale or purchase of informational services wherein the relay or transmission of electromagnetic waves is necessary for the informational service to be received. In addition, the end-product of informational services received in any tangible form, such as on disk, flash media, Compact Disc (CD), Digital Versatile Disc or Digital Video Disk (DVD), paper, or tape, is tangible personal property and, as such, is also subject to sales/use tax. “Information services” include the furnishing of information of any kind, which has been collected, compiled, or analyzed by the seller and which is made available through electromagnetic waves. Examples include: credit reports; on-line newspapers, magazines, and other subscriptions; legal libraries, including Lexis and Westlaw; and historical stock, bond, and mutual fund quotes. The tax is imposed on the purchase price or charge for access, use, or receipt of such information or the rights to access, use, or receive such information. The result is that such information is taxable whether it is accessed, used, or received electronically or in hard copy, such as in books, publications, or reports… Sales Tax Colorado, LLC July 17, 2014

12 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. Some home-rule cities like Silverthorne in Summit County do not have a use tax. Sales Tax Colorado, LLC July 17, 2014

13 Software & Maintenance Agreements
CO State doesn’t currently tax electronically delivered software, but did from March 1, 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. CO FYI Sales 89 Computer Software: Software is not delivered to the customer in a tangible medium if it is provided through an application service provider, delivered by electronic software delivery, or transferred by load and leave software delivery. Sales Tax Colorado, LLC July 17, 2014

14 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 for Denver, CO Account for Aurora, CO (Non-physical location – Can be triggered by installation work) FYI Sales 58 Requirements for Sales Tax Remittance for Multiple Location Filers Sales Tax Colorado, LLC July 17, 2014

15 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 Sales Tax Colorado, LLC July 17, 2014

16 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 Sales Tax Colorado, LLC July 17, 2014

17 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 Sales Tax Colorado, LLC July 17, 2014

18 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 Sales Tax Colorado, LLC July 17, 2014

19 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 Sales Tax Colorado, LLC July 17, 2014

20 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. Sales Tax Colorado, LLC July 17, 2014

21 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? Sales Tax Colorado, LLC July

22 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. Sales Tax Colorado, LLC July 17, 2014

23 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? Sales Tax Colorado, LLC July 17, 2014

24 Questions? Sales Tax Colorado, LLC July 17, 2014

25 Thank you! Alan Smith ISALES TAX COLORADO, LLC I S. 4th Ave., STE BRIGHTON, CO 80601 Phone: Web: Sales Tax Colorado, LLC July 17, 2014

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