Online sellers around the country have been waiting for nearly a year to see if Colorado’s controversial use tax notice law, which some characterize as a contrast to the Supreme Court’s physical presence standard, would stand up to an aggressive legal challenge.
And it did! As we detailed last week in this post, after two trips to the Supreme Court, Colorado will be allowed to impose tax-related requirements on sellers that have absolutely no physical presence in the state.
As a result, businesses with over $100,000 in annual sales into the state could soon face onerous reporting obligations to both consumers and the Department of Revenue. Colorado is not alone in its push to require this type of reporting regardless of physical presence. Four other states – Oklahoma, South Carolina, South Dakota and Kentucky – have similar but not identical notice laws on the books.
Many view the decision as another falling domino leading toward the physical presence requirement’s demise. It could create a new tax compliance landscape where all sellers will be required to collect and remit tax on every transaction regardless of location.
What can we reasonably expect to happen next?
As we look forward to 2017, our sales tax experts weighed in on that question. Here are five things businesses – and their customers – should expect to see in 2017.
- Possible penalties and fines for consumers – What do states plan on doing with this new information? To some extent, they clearly hope that giving notice will spur voluntary consumer compliance. But by possibly punishing a company’s customers, the states could impact customer satisfaction, which is a powerful motivator for companies to just pay the tax. The question remains: Will any state attempt to “audit” individual private consumers for their failure to self-assess use tax?
- Registration as the alternative – The one common element among the existing notice rules is that they only apply to sellers that are not already collecting tax. In a world where tax automation makes compliance manageable, some vendors may simply opt to collect tax rather than step into the murky waters of notice. Doing so also eliminates the customer’s burden to self-assess.
- More jurisdictions to follow suit – States remain hungry for revenue, and it is likely that at least some states will view these developments as opportunities to enact similar rules. Notice requirements are particularly attractive, as they offer the opportunity to increase tax revenue without the political repercussions of enacting a tax increase.
- Existing rules in OK, SC, SD, KY and VT may change – The Colorado rules took notice further than any other state, especially with respect to imposing penalties for noncompliance. States may now look to revisit their rules and impose similar penalties.
- Details from Colorado on how this will work – In order for its citizens to be compliant, Colorado needs to explain the substance and form of the three vendor requirements under the law: transactional notice, annual notice and DOR notice.
2017 is definitely shaping up to be an interesting year in the world of tax compliance and Sovos will continue to provide leading analysis of what these changes mean for businesses.
Learn more about how automating your sales tax compliance process will keep you up to date on constantly changing sales tax regulations.
The post 5 Things Businesses With Colorado Customers Could See Next appeared first on Sovos Compliance.
About the Author
Charles Maniace is the Director of Regulatory Analysis at Sovos. An attorney by trade, Chuck leads a team of attorneys and tax professionals responsible for all the tax and regulatory content that keeps Sovos clients continually complaint. Over his 15 year career in tax and regulatory automation, he has given talks and presentations on a variety of topics including The Taxation of High Tech Transactions, The Taxation of Remote Commerce, The Regulatory Implications of Brexit, The Rise of E-Audits, Form 1042-S Best Practices and Penalty Abatement Practices for Information Returns. Chuck is a member of the Massachusetts Bar and holds a BS in Business Economics from Bentley College, a JD from Boston University School of Law, and an LL.M in Taxation from Boston University School of Law.More Content by Charles Maniace