United States: Colorado Enacts Remote Seller Legislation To Simplify Sales Tax Under Proposed Federal Marketplace Fairness Act

On May 28, Colorado Governor John Hickenlooper signed legislation1 to implement the minimum sales and use tax simplification requirements of the proposed federal Marketplace Fairness Act of 2013 (MFA).2 Under the MFA, the federal government would authorize states to require remote (out-of-state) sellers to collect sales tax on taxable sales made within the state if certain simplification measures are taken. If the MFA is enacted into law by the federal government with the same simplification requirements that currently are provided in the proposed legislation, Colorado intends to compel out-of-state retailers to collect and remit sales tax. The Colorado legislation generally is effective July 1, 2014, but some of the provisions are contingent on the enactment of the MFA.3


Historically, remote sellers were afforded federal protections from collecting sales and use tax if they did not exceed nexus thresholds in the state and local jurisdictions.4 While this protection does not exempt purchasers from the duty to pay use tax, for practical purposes, individual consumers frequently do not comply.

Recently, many states, including Colorado, have passed legislation that allows for the collection of the lost use tax revenue. In February 2010, Colorado enacted legislation imposing three notice and reporting requirements on out-of-state retailers that sell products to customers in Colorado.5 Two years later, the U.S. District Court ruled that the law was unconstitutional because it violated the Commerce Clause.6 The Court permanently enjoined Colorado's enforcement of the notice and reporting requirements against remote sellers.

On May 6, 2013, the U.S. Senate passed the MFA, which would allow states to require remote sellers to collect and remit sales and use tax on sales to in-state residents even if the retailer has no physical presence in the state.7 Under the MFA, a member state of the Streamlined Sales and Use Tax Agreement (SSUTA) would be able to require the collection of tax beginning 180 days after it publishes notice of its intent to exercise its authority.8 In order for states (such as Colorado) that are not members of the SSUTA to secure collection and remittance authorization, such states would need to adopt and implement several minimum sales tax simplification requirements. A non-member state could begin exercising its authority no earlier than the first day of the calendar quarter that is at least six months after the date of its enactment of legislation adopting the simplification requirements. The MFA would exempt remote sellers with $1 million or less in annual remote sales, and would require that an adopting state provide free software to remote sellers to calculate and file sales and use tax returns. The MFA is currently under consideration in the U.S. House of Representatives, where amendments to the bill appear likely.

Simplification Provisions

Colorado is the first state to enact legislation designed to satisfy the minimum simplification requirements contained in the MFA.

The new law provides the following:

  1. An option for local taxing jurisdictions governed by a home rule charter to elect to participate by passing a local ordinance or resolution;9
  2. For those local taxing jurisdictions that so elect, authority for the Colorado Department of Revenue to be the sole administrator, collector and enforcer of a remote seller's10 sales and use tax requirements, including the establishment of a single form for returns, and audits for remote sales;11
  3. A requirement that remote sellers electronically report and remit payments on a monthly basis to the Department;12
  4. A requirement that the Department provide information regarding taxability of products and services and those products and services that are exempt;13
  5. A requirement that the Department provide a database of taxability by product/service and sales tax rates, along with a database of local taxing jurisdiction boundaries to remote sellers;14
  6. A requirement that the Department provide remote sellers and certified software providers with a 90-day notice of any tax rate change;15
  7. A requirement that the Department provide free software for calculating and filing sales tax returns as well as any necessary updates;16
  8. "Hold harmless" provisions to remote sellers and other retailers for penalties and interest related to software errors;17 and
  9. An exemption for sales tax collection on direct mail advertising, candy, soft drinks, non-essential articles and non-essential containers or bags.18

The legislation also adopts the MFA's sourcing provisions for remote sales.19 These sourcing provisions are added to the definition of "retail sale."20

Under existing law, to cover its expenses in collecting and remitting tax, a vendor is allowed to retain 2.22 percent of all sales tax reported on any return made on or after July 1, 2011, but prior to July 1, 2014.21 The legislation increases the vendor allowance to 3 1/3 percent (although for 12 months beginning on the first day of the third month following the MFA's effective date the allowance is reduced by 0.105 percent).22 However, the vendor allowance is paid over to the certified software provider with respect to sales tax collected by users of the "free" software.23


The estimated lost sales and use tax revenue from Internet sales for all states was approximately $11.4 billion in 2012.24 Based on these estimates, cash-strapped states are searching for avenues to collect these lost revenues. Now that the U.S. Senate has passed the MFA, proponents of the MFA place their hopes with the U.S. House of Representatives, which as noted above, may substantively change the contents of the bill.

Note that the Colorado legislation adopts the simplification provisions contained in the version of the MFA that was passed by the U.S. Senate in early May 2013. Presumably, if the enacted version of the MFA contains different simplification requirements, the Colorado law will need to be revised accordingly. Most likely, the Colorado General Assembly decided to approve this legislation prior to the final enactment of the MFA because the General Assembly was scheduled to adjourn on May 8, 2013. Otherwise, if the MFA is enacted later this year, the Colorado General Assembly would need to schedule a special session or wait until next year to enact legislation to conform to the final version of the MFA.

Champions of the MFA and the Colorado legislation argue the necessity of the tax bills to "level the playing field" between remote sellers and the traditional brick-and-mortar retailers. Remote sellers who are not required to collect sales tax are able to offer consumers a lower overall transaction price on online purchases. In addition to being able to omit sales tax, remote sellers currently enjoy lower administrative costs than in-state retailers who are forced to comply with both the state and home rule city sales and use tax requirements.

Opponents of the MFA contend the legislation would place too high of an administrative burden on Internet retailers. Notwithstanding the U.S. Supreme Court's ruling in Quill, with over 9,600 jurisdictions that impose sales tax requirements nationally and no uniformity in tax base or tax rates, many businesses believe that the collection requirement would still be too burdensome even if the MFA were enacted. Others feel that states compete to attract businesses and customers through lower tax rates and that under an MFA regime, this free market competition will be eliminated.

It should be noted that Colorado does not have the explicit authority to collect tax from remote sellers until the MFA is enacted by Congress.As noted above, states currently are not allowed to impose a sales tax collection requirement on remote sellers that do not have nexus with the state. Also, the U.S. District Court permanently enjoined Colorado's notice and reporting requirements for remote sellers because they violated the Constitution.25

The MFA provides states with a potential opportunity to collect a significant portion of lost use tax revenue from online purchases. But in comparison to other states, Colorado is uniquely ill-positioned to qualify for participation in the MFA due to the fact that approximately 70 local jurisdictions, including all major metropolitan areas, enjoy significant sovereignty over tax matters. Sales and use tax at the local level in Colorado is administered with complete autonomy and with no effective synchronization with the state. This often results in significant deviations from the state sales and use tax, including the governing law and regulations, administration, and the appeal forum and process. As a result, sales and use tax compliance within Colorado is a complex undertaking, particularly when compared to other states.

Provided that the MFA is enacted, the Colorado legislation potentially offers a light at the end of the tunnel for many businesses. Colorado differs from most states because of its state/home rule tax dichotomy.26 Businesses can expect different sales tax rates depending on the home rule city, but varying from the state determination of what is or is not taxable can lead to unexpected surprises. The legislation not only provides a single point of contact but also a uniform tax base definition.

The monumental task of implementing the measures of the law lay ahead. In order to collect sales tax from remote sellers, these home rule jurisdictions must give up their autonomy and allow the Department to administer and collect on their behalf. At this point, however, it is uncertain whether local jurisdictions will pass ordinances or resolutions conveying their sales tax authority to the state.

Other Concerns

The MFA provides a small seller exemption for remote sellers. As required, the Colorado legislation adopts this provision exempting remote sellers with $1 million or less in nationwide remote sales from the sales tax collection requirements in states where they do not have a physical presence.27 The annual revenue calculation is an aggregate amount from all states. This requirement could result in small businesses exclusively engaging in online sales having to file in several states with relatively small sales in each state. Opponents of the MFA worry that the administrative costs to these businesses will negate the benefit.

Finally, there is a bit of irony built into the Colorado legislation and the MFA. If online retailers continue to remain "remote sellers" with respect to Colorado, they would be required to file only a single tax return each month. In contrast, companies with nexus would still be required to separately register and file tax returns with Colorado and each home rule jurisdiction. For some companies, this means up to 70 tax filings with separate jurisdictions each month. Thus, the Colorado legislation and the MFA may actually serve to discourage remote sellers from developing a nexus-creating presence in Colorado, considering that a seller with Colorado nexus is subject to much more complicated sales tax compliance requirements.


1 H.B. 13-1295, Laws 2013.

2 S. 743, as approved by the U.S. Senate on May 6, 2013. For a detailed discussion of the MFA, see GT SALT Alert: U.S. Senate Approves Marketplace Fairness Act that Would Allow States to Impose Sales Tax Collection Requirements on Remote Sellers.

3 H.B. 13-1295, § 16.

4 Quill v. North Dakota, 504 U.S. 298 (1992). See FYI Sales 5, Colorado Department of Revenue, April 2013.

5 COLO. REV. STAT. § 39-21-112(3.5).

6 Direct Marketing Association v. Huber, U.S. District Court, D. Colorado, No. 10-cv-01546-REB-CBS, March 30, 2012; appealed to 10th Cir., No. 12-1175.

7 S. 743, as passed by the U.S. Senate on May 6, 2013.

8 A member state could not exercise its authority under the MFA earlier than the first day of the calendar quarter that is at least 180 days after the enactment of the MFA.

9 H.B. 13-1295, § 1(b). A "local taxing jurisdiction" is a city, town, municipality, county, special district or authority authorized to levy a sales tax, and any municipality governed by a home rule charter that passes an ordinance, resolution or charter provision accepting the state's administration and distribution of its local sales tax on remote sales that is collected and remitted by remote sellers in conformance with the provisions of this legislation. COLO. REV. STAT. § 39-26-102(5.7). In light of the significance of home rule issues in Colorado, it is uncertain to what extent local taxing jurisdictions will surrender their sales tax authority.

10 A "remote seller" is a person who makes a remote sale, but does not include a small seller as defined under federal law. A "remote sale" means a sale into the state in which the retailer would not legally be required to pay, collect or remit state or local sales taxes unless provided by an act of Congress. COLO. REV. STAT. § 39-26-102(7.6), (7.7).

11 COLO. REV. STAT. § 39-26-122.7(2)(a). Note that the Department and local taxing jurisdictions are directed to develop a "central audit bureau" and share in the costs and the staffing of the bureau. The central audit bureau will be the sole entity within the state responsible for auditing remote sellers. COLO. REV. STAT. § 39-26-122.7(2)(b).

12 COLO. REV. STAT. § 39-26-122.7(1).

13 COLO. REV. STAT. § 39-26-105.3(7).

14 Id.

15 Id.

16 COLO. REV. STAT. § 39-26-105.3(8).

17 COLO. REV. STAT. § 39-26-105.3(9).

18 COLO. REV. STAT. § 39-26-104(2)(e).

19 COLO. REV. STAT. § 39-26-102(9).

20 Id.

21 COLO. REV. STAT. § 39-26-105(1)(g)(I)(A). This is commonly called a service fee or vendor's fee. Note that some local jurisdictions allow a larger service fee. See Colorado Sales/Use Tax Rates, Publication DR 1002, Colorado Department of Revenue, Feb. 26, 2013.

22 COLO. REV. STAT. § 39-26-105(1)(c)(II)(A), (B), (g)(I)(B).

23 COLO. REV. STAT. § 39-26-105.3(8)(b)(III).

24 Steven Maguire, State Taxation of Internet Transactions, Congressional Research Service Report for Congress, May 7, 2013.

25 Direct Marketing Association v. Huber, U.S. District Court, D. Colorado, No. 10-cv-01546-REBCBS, March 30, 2012. This case, renamed Direct Marketing Association v. Brohl, has been appealed to the 10th Circuit of Appeals, No. 12-1175, and was argued on November 7, 2012, but the decision has not yet been released.

26 COLO. REV. STAT. § 30-35-103; Colorado Sales/Use Tax Rates, Publication DR 1002, Colorado Department of Revenue, Feb. 26, 2013.

27 COLO. REV. STAT. § 39-26-102(7.7). The definition of "remote seller" does not include a small seller as defined under federal law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.