Colorado Passes Two Restrictive DM Taxes

The state of Colorado recently passed two laws which apply to the direct marketing industry. Both laws went into effect on March 1, 2010. One of the laws applies particularly to out of state sellers who do not collect and remit Colorado sales tax.

The first law, HB 1189 removes an existing sales tax exemption for businesses "engaged solely and exclusively in the business of providing cooperative direct mail advertising." Colorado law defines "cooperative direct mail advertising" as: advertising for one or more businesses which is in the form of discount coupons, advertising leaflets, or other printed advertising which are delivered by mail in a single package or bundle to potential customers of such businesses participating in such advertising. The full text of HB 1189 can be found here.

The second law, HB 1193 is targeted at out of state sellers who do not collect and remit Colorado sales and use tax and requires these businesses to:

  • notify Colorado customers that they are required to report the tax owed on their purchases;
  • send, by January 31 of the following year, a notice to all of their Colorado customers of the total amount of their purchases in the previous year (this notice must be sent via first-class mail and be labeled "Important Tax Document Enclosed"); and
  • file an annual statement with the Colorado Department of Revenue summarizing the total amount of purchases made by Colorado residents in the previous year.

The full text of HB 1193 can be found here.

The Colorado Department of Revenue will initiate a rulemaking to implement HB 1193, but it will take some time for that full process to be completed. In the meantime, on February 26, the Department of Revenue issued emergency regulations providing for a three-month waiver of "penalties and penalty interest for the sale, use, storage, or consumption of tangible personal property and services described [in each of the two bills], which suspended the sales and use tax exemptions addressed in those bills."

The full text of HB 1193 can be found here.

These laws are important to marketers as states continue to attempt to tax interstate commerce, and to penalize out of state businesses that fail to comply. To learn more about Olshan's direct marketing practice, click here.

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