Colorado new small business exception to destination sourcing law
by November 12, 2023
Update August 2024: This exemption expired October 1, 2022 (State of Colorado, H.B. 22-1027)
Back in 2019, Colorado changed how sales tax should be collected within the state. Instead of collecting sales tax based on the origin of the product or service, sellers and retailers began collecting sales tax based on the buyer’s address. This is called destination sourcing.
However, there’s one more twist to this story. On June 30, 2021, the governor of Colorado, Governor Polis, signed a new piece of legislation, SB21-282. This extends a small business exception to the destination sourcing requirements put into place back in 2019.
As with many laws, it’s important to read the fine print. This exception applies only to businesses with less than $100,000 in retail sales. And beginning February 1, 2022, all retailers, regardless of sales volume, will be required to adhere to the destination sourcing rules. The Colorado Department of Revenue does not have the authority to grant any exceptions to this rule.
Here are the destination sourcing guidelines all sellers in Colorado are required to abide by come February 1, 2022:
“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 the Colorado Department of Revenue’s publication Sales & Use Tax Topics: Leases for sourcing rules for lease payments.”
As a reminder, any seller making more than $100,000 in retail sales is already required to abide by the guidelines listed above.
