When I first started researching this bill, I kept running across articles from affiliate marketers saying that it wouldn’t impact them, because Colorado had removed the word “affiliate” from their nexus definition. That’s technically true, but I think they missed the forest for the trees. Colorado could afford to lose the affiliate language from the tax bill, because it was casting a wider net.
Effective March 1st, if you, as an online retailer, sell someone in Colorado a product over the Internet, you are obliged to inform the purchaser that he or she has a use tax obligation. Use tax is what we’re supposed to pay when we buy things over the Internet. It’s the equivalent of the sales tax we would have paid, if we’d got down the road and bought locally.
If you put the pieces together, you come up with this: Colorado has done what many states have been trying to do – figured out a way to tax the Internet.
Back to your merchant obligations. You are obliged to tell the purchaser about their use tax obligation again, at tax time. And, just in case they didn’t get the message, you also are obliged to file a report with the Colorado tax authorities telling them which of their state residents you sold stuff to. So … you get to track the tax, calculate the tax, determine whether there’s state, city, municipal, county, etc., and pay for your own software upgrades, etc.
If you don’t follow Colorado’s new law, you could face fines and penalties, plus have your records subpoenaed.
Or, you could just not sell to customers in Colorado. Think about it. You’re a small business with limited resources. Wouldn’t it make sense to weigh the cost of compliance against the potential or historical lost revenues from CO-based sales?
I don’t like this law. More than that, I’m afraid it will catch on.