VALLEY — December 1 was supposed to be the day when those big online companies stealing sales taxes away from local communities would have to start paying their share.
It was — and probably still is — a great idea on the surface. And ultimately it will bring more revenue to local governments.
However, the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. created “unintended consequences” that could actually hurt local businesses that are also trying to make some of their living from on-line purchases.
The Wayfair decision means that states can charge tax on purchases made from out-of-state sellers, even if the seller does not have a physical presence in the taxing state.
In fact, after the Wayfair decision came down, the Colorado Department of Revenue stated it would require out-of-state retailers who do business in Colorado to obtain a state sales tax license, and the deadline to do so was today, November 30. Such businesses would then start collecting and remitting sales taxes.
This would apply to out-of-state businesses whose sales in Colorado exceeded $100,000 or 200 transactions annually.
Since this was the result of a court decision and not legislation, the new regulations would come down from the state department of revenue through administrative rule. Also since state administrators recognized that not everyone would be ready by December 1, they provided a grace period until next spring.
“We know this is a big change for some businesses,” the Colorado Department of Revenue stated in a news release this fall. “The department will offer a grace period through March 31, 2019, to comply with these changes to ensure retailers have sufficient time to make the required systems changes. Businesses will be granted a waiver from compliance with the destination-sourcing changes automatically until then.”
That will probably not be enough time to implement a workable system, according to some local business owners who are faced with complying with the new regulations.
“It could take us two years,” said Alamosa businessman Eric Burt, who has shared his concerns with local authorities.
“It’s a classic case of unintended consequences,” he added. “I don’t think anybody completely thought some of this stuff through.”
He said his business is not as affected as some others who carry online merchandise and now must figure out how to meet all the complexities of the new regulations.
Burt said those pushing for immediate implementation were municipalities who were anxious to start receiving sales tax from online purchases during the holidays.
“It has to happen in the long run,” Burt said, “but right before the holidays?”
He said there are too many layers to get this implemented quickly.
“It’s a mess,” he said.
“The way it’s written it’s impossible to comply with,” said Tom Haefeli, a San Luis Valley businessman who has contacted everyone from his local accountant to state legislators and the National Federation of Independent Business (NFIB) to help sort out the new regulations prompted by the Wayfair decision.
He said his accountant told him it would probably require legislation to address some of the issues with the new regulations.
For one thing, Haefeli said, although the regulations provide an exemption for out-of-state businesses doing less than $100,000 or 200 transactions online annually, there is no such exemption for Colorado retailers. That means his son, who just started a business and probably does $5,000 in online sales, would have to comply with the new complicated regulations.
“If he moved to Montana and had the same business and shipped into Colorado, he wouldn’t have to comply,” Haefeli said.
Haefeli’s business would also be exempt if the same exemption for out-of-state retailers applied to in-state businesses. As it stands now, for the handful of sales he does ship within the state, he would have to develop a point-of-sales system that would comply with the new regulations.
That in itself would be a nightmare. Haefeli explained that the state’s database includes more than 800 different tax jurisdictions throughout the state, which are categorized by town. The way Haefeli would collect sales tax, however, would be by the shipping address, which would be the zip code.
One does not jive with the other.
Taking Mineral County, for example, Haefeli pointed out that while he might ship to one zip code there, the state’s database lists five separate tax jurisdictions in Mineral County alone (incorporated Creede, unincorporated Mineral County, etc.)
“Everybody’s on hold,” Haefeli said, because the way the regulations are written, it would be impossible to comply with them right now.
He said his accountant told him, “They are going to come up with a Band-Aid to fix a very poorly written executive order.”
Haefeli and Burt said that the new regulations were supposed to go into effect December 1 so everyone could benefit from Amazon’s Christmas sales, but the state doesn’t have its infrastructure in place to handle its new regulations, and Amazon is probably the only merchandiser able to comply. It could afford to write software to deal with 804 tax jurisdictions.
Also the way the regulations are written, tax returns would have to be filed on the 20th of every month. If Amazon, for example, had to file 800-plus tax returns every month, and other large retailers did the same, the state would have to process all of that every month and remit those taxes to the 800-plus jurisdictions.
“I don’t think the state’s even going to be ready to implement this,” Haefeli said.
Burt agreed. “Is the state ready to receive all these returns? Our vendors point of sales systems ready to deal with this?” he asked.
In talking with NFIB, Haefeli said that organization is on a campaign to try to simplify Colorado’s tax code, which is one of the most complex in the country.
Haefeli said when he spoke with State Representative Donald Valdez, “he seemed genuinely concerned about it,” but he did not know what the legislature might be able to do, since this was an executive ruling to begin with.
State Senator Larry Crowder said in the near future he would be meeting with NFIB and the Coalition to Simplify Colorado’s Sales Tax to determine the best course of action.
“There are several issues on the table to simplify and be cost effective for small business,” Crowder said. “This is the result of a Supreme Court decision to tax goods on the internet and the question, as I see it, is how to be efficient in this proposed transition. I believe if the state is going to go forward, then the state should provide IT that would be effective.”
Burt said it would probably take federal legislation to deal with the situation, “to level the playing field between states.”
Haefeli said in talking with fellow retailers, some of them said they were just going to ignore the new regulations because they did not believe the state had the manpower to enforce them anyway. He said since there is a grace period in place, he is going to wait and see what kind of fixes might be made to make the regulation more workable.
“It’s going to be a huge mess,” he said.
'Wayfair' ruling will benefit in long run
ALAMOSA — While local government administrators are looking forward to more sales tax revenue once out-of-state retailers have to start paying it, they are also aware of the unexpected challenges the new regulations created.
“The Supreme Court Wayfair decision was very exciting for a lot of municipalities and local governments,” said Alamosa City Manager Heather Brooks. “In essence we have been prevented from being able to collect sales tax, and as online purchasing over the internet has grown over the years, that’s represented more and more revenues that municipalities and local governments have not been able to collect on.”
She added that the decision represented a philosophical win as well, because the online merchandising had created an uneven competitive advantage for “smaller businesses, mom and pop businesses, brick and mortar … We feel it evens the playing field.”
She said she has been made aware through talking with local businesses, however, that there are some concerns about how quickly the new regulations are coming into play. The local businesses are very much in agreement with the online regulations, she added, but they are also feeling an impact that the state likely did not intend.
Brooks has shared these concerns with the Colorado Municipal League, which works closely with state departments like the Colorado Department of Revenue, which is implementing the new regulations.
Brooks said the city wants to see these regulations implemented in a thoughtful manner.
“We want to be very deliberate,” she said. “We are not in a rush to start. We want to work in very deliberate manner.”
Brooks said there has been a lot of pressure pent up over the years, and many governmental entities are anxious to start seeing some revenue from online sales. While she could not speak for other municipalities, however, she said Alamosa wants to support businesses to the extent it can to make sure the regulations are implemented in a thoughtful and fair way.
“I think we have to be smart about it,” she said.
She said she does not know how much more money Alamosa itself will see once the taxes from out-of-state online sales start coming in. “We do anticipate an increase in revenue the city is receiving for sales tax.”
She encouraged businesses to take advantage of the training available online through the Colorado Department of Revenue. See www.colorado.gov/Tax/Sales-Tax-Changes
Alamosa County Chamber of Commerce Executive Director Randy Wright added that he and Small Business Development Center Director Tom Monaco would be coordinating some local educational events in the future as well.
Alamosa County Administrator Gigi Dennis was hopeful that the county would see more revenue as a result of the Wayfair decision and resulting regulations.
“Until the legislature fixes the Gallagher Amendment and the negative impact it has on the county general fund, the internet sales tax will help us maintain the services the residents of Alamosa County expects,” she stated.
SLV Development Resources Group Director Kevin Wilkins responded, “In general the Supreme Court decision is to the benefit of bricks and mortar retailers who not only collect sales tax, but also pay property tax and contribute to local philanthropic efforts. In the long term this is good for rural America and the San Luis Valley.”
He added, “The challenge will be fairly accommodating small businesses that augment their bottom line through online fulfillment. The complexity of collecting and reporting taxes for multiple jurisdictions might contradict recent efforts in expanding sales through online resources. I believe there will eventually be a solution through point of sale applications or use of online platforms such as PayPal or others.”
“Tax collection at the point of sale eases the process for our residents and creates a level playing field for Colorado businesses, as out-of-state retailers will be required to collect state sales tax, just as in-state retailers do today,” Colorado Department of Revenue Executive Director Michael Hartman said.
“The department will ensure fair, efficient and transparent implementation of this decision. We will pave the least burdensome road possible for businesses to comply with these regulations.”