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Armstrong: Colorado’s convoluted sales tax rules punish small businesses

Jerry “Wiggy” Wigutow takes pride in making sleeping bags in Grand Junction, where he employs more than 30 people in his factory.

“If you buy our product, the Wiggy’s name comes on it. That means it’s our reputation and my name on the line,” he says on his web page.

For years, whenever my family has gone camping, we’ve taken Wiggy’s bags, and Wiggy (also a friend of my dad for years) has never let us down.

Ari Armstrong

But now Colorado politicians may let down Wiggy and countless other small business owners by imposing punishing sales tax rules that are extremely costly and burdensome.

Wiggy says that, assuming the new rules come online (as soon as April 1), he will no longer ship bags to anyone in Colorado outside of the Grand Junction area. “If you’re in Denver and you want a Wiggy product, you have to come here to buy it, or you have to get someone to buy it for you,” he said.

Wiggy explained in a Dec. 18 post, “The state of Colorado wrote to all retailers that we would have to start collecting local taxes when selling and shipping product to any city or county in the state. The number of cities that have their own tax assessment is vast. … We would have to keep records of sales to each town or city and collect taxes for those locations and each quarter send a report and a check. … I would have to pay for someone to keep these records; easily $400 to $500 per week.”

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Under the old rules, a Colorado business that shipped a product in state had to collect sales taxes only for the tax regions that overlapped between buyer and seller. In other words, if you shipped from Denver to Denver, you had to collect all of the relevant sales taxes for Denver. If you shipped from Colorado Springs to Denver, you had to collect only the taxes that both areas have in common, the state rate. (Jon Kamm offers details.)

The old rules are bad enough. Years ago I got a sales tax license so I could sell copies of my books via mail. The paperwork was such a hassle that I quickly abandoned selling on my own and now sell most everything through a giant corporation, Amazon, which has the resources to handle the bureaucracy.

The new rules are vastly worse. A business has to collect sales taxes based on where the good is shipped. The problem is that there are so many different governments that collect sales taxes that complying is a bureaucratic nightmare.

If you think I exaggerate, download the Department of Revenue’s eleven-page form DR1002, and try to put yourself in the shoes of a business owner trying to deal with this.

Once you get past the state sales tax of 2.9 percent (which has 15 categories of exemptions), you will find a lengthy description of the RTD tax boundaries.

Let’s say you’re trying to ship a good from Fort Collins to Broomfield County. You have to check to see whether the RTD tax applies, because it does not apply in “certain areas immediately adjacent to [the] I-25 and Highway 7 interchange.”

Then you need to see if the Scientific and Cultural Facilities, Local Improvement, Mass Transportation, Regional Transportation, Multi-Jurisdictional Housing, Public Safety Improvements, Metropolitan, Health Services, Local Marketing, or County Lodging taxes apply. Of course you also need to check the county tax.

And then the real fun starts, because you need to figure out whether the city to which you’re shipping collects its own sales tax or has the state do it, and you need to figure out the city’s rate. The state collects taxes for 151 cities, and another 71 home-rule cities collect their own taxes. Enjoy dealing with those dozens of bureaucracies.

As Brian Eason points out, if you work out all the possible combinations of overlapping tax regions, you get more than 700 possibilities.

Of course, if you need help, you can pay extra to use one of the state’s “Certified Address Database Providers.”

As I said, it’s a bureaucratic nightmare.

So when someone tells you that making mail-order businesses collect local sales taxes “levels the playing field” with local retail businesses that don’t ship, step fast before you drown in the manure.

The cost of taxes is not just the amount of money you send to the government; it is the cost of compliance. Under the new rules, the compliance costs for businesses that ship are severe and oppressive.

What’s the solution? Sen. Rob Woodward has the best proposal so far; it would exempt businesses that do less than $100,000 worth of sales in a given area.

Another approach that would help is to make the state the single point-of-contact for all sales tax remissions. Senate Bill 6 works toward that goal, but it lets home-rule cities decide whether to participate.

I say if cities decline to cooperate, let them miss out on the funds. Anyway, the system would take months or years to implement — what are businesses to do in the meantime?

The legislature needs to fix this crisis. Colorado’s business owners and their customers will be watching intently.

Ari Armstrong (@ariarmstrong) publishes the Colorado Freedom Report and is the author of Reclaiming Liberalism.

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