With the expiration of the Colorado destination sourcing exemption on January 31, 2022, all businesses located in Colorado, regardless of sales volume, must begin complying with destination sourcing rules effective February 1, 2022. The Colorado Department of Revenue will not grant exceptions to this statutory requirement.
What is destination sourcing?
Destination sourcing means that sales tax is calculated based on where the taxable product or service is delivered to the purchaser, not to the business location of the seller.
In 2019, exceptions to destination sourcing were given to small businesses with less than $100,000 in retail sales. On June 30, 2021, Colorado Governor Polis signed SB21-282, which extended the small business exception to destination sourcing requirements. Now that the Colorado Geographic Information System (GIS) is online and available for everyone to use, state statute requires Colorado-based businesses using the temporary origin sourcing exception to transition to destination sourcing on February 1, 2022. The Colorado GIS allows users to search for Colorado sales tax rates and jurisdiction codes for any location, down to a street address.
Businesses with over $100,000 in sales were not granted an exception and should already be using destination sourcing to determine sales tax rates.
Colorado General Destination Sourcing Rules
In general, retail sales in Colorado are sourced as follows:
1. 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.
2. 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 where the purchaser receives the purchased property or first uses the purchased service.
3. 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 where the recipient takes possession of the purchased property or first uses the purchased service.
If a sale cannot be sourced using the general destination sourcing rules, Section 39-26-104(3)(a), C.R.S. provides additional guidelines for sourcing retail sales based upon the seller’s records, the location from which the property was shipped, or the purchaser’s payment instrument. These sourcing rules are for sales of property or services and do not apply to leased property.
If you have any questions regarding local sourcing rules in Colorado or any other state, please contact a member of our team by completing the contact form below.