Nexus Presumption and Burdensome Reporting Requirements


The state of Colorado recently enacted legislation that took effect on March 1, 2010 establishing a sales and use tax nexus presumption for out-of-state retailers that do not collect Colorado sales or use tax and are also part of corporate group that includes another retailer with a physical presence in the state. The presumption can be rebutted if the in-state retailer does not perform any solicitation on behalf of the out-of-state retailer. California introduced similar legislation in April, and many other states are expected to follow this trend.

However, more disconcerting than the nexus presumption is the burden that Colorado is placing on retailers and vendors that do not have nexus or a collection responsibility for Colorado sales and use tax. Colorado is now requiring out-of-state retailers and vendors to notify their Colorado customers that the state requires the purchaser to file a sales or use tax return. They are also required to send notification to all Colorado customers with specific information regarding the prior year’s purchases and reiterate that a sales and use tax return may be due to Colorado.   The retailers must also file a statement with the Colorado Department of Revenue containing the details of transactions with Colorado purchasers.

It appears as though the state of Colorado is purposefully trying to impose a greater administrative burden on retailers that do not collect Colorado tax than on retailers that do, perhaps a goal of getting more out-of-state retailers to register and collect the state’s sales or use tax. However, if the decisions of the U.S. Supreme Court in National Bellas Hess v. Illinois and Quill v. North Dakota prohibit states from imposing sales and use tax collection and filing responsibilities on out-of-state retailers without substantial nexus, it is unclear how Colorado would be able to impose the above filing requirements on the same retailers. Such an administrative burden could inhibit interstate commerce and possibly be unconstitutional. California has introduced similar legislation. How many more states will do the same?

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.

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