Presenter:
Alan Smith – Sales Tax Colorado, LLC
* 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
2
* 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
3
* 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
4
* 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
5
* 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
6
* 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
7
* Construction
* Delivery & Installation Charges
* Information Services
* Internet transactions
* Manufacturing
* Medical and Dental Supplies and Equipment
* Software
Sales Tax Colorado, LLC July 17, 2014
8
* 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
9
* 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.
Sales Tax Colorado, LLC July 17, 2014
10
* 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
Sales Tax Colorado, LLC July 17, 2014
11
* 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.
Sales Tax Colorado, LLC July 17, 2014
12
* 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.
Sales Tax Colorado, LLC July 17, 2014
13
* 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)
Sales Tax Colorado, LLC July 17, 2014
14
*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
15
* 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
16
* 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
17
* 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
18
* 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
19
* 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
20
* 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 17 2014
21
* 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
22
* Filing A Return Limits Look-Back.
* Are your clients registered in every state and homerule 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
23
Sales Tax Colorado, LLC July 17, 2014
24
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
Sales Tax Colorado, LLC July 17, 2014
25