When a winery ships wine direct-to-consumer (DtC) across state borders, the sale skips over distributors and retailers, who are generally the parties who collect and remit the recipient-state’s taxes. As such, when a state moves to permit DtC shipping by wineries, they often require that any applicant for a DtC license first accepts an obligation to pay the state taxes that it would otherwise receive.
Unlike most states, however, Colorado does not make the assumption of a sales tax obligation a condition of getting a DtC license. Instead, a winery shipping to the Centennial State would only need to collect and remit sales taxes if it has nexus (that is, a substantial connection) there.
Previously, nexus was only established by having a physical presence in the state. However, like many other states, subsequent to the South Dakota v. Wayfair Supreme Court decision, Colorado enacted rules which sought to compel sales tax collection and remittance responsibility on sellers based on their economic presence in Colorado, regardless of whether they may be physically located there.
In December 2018, the state of Colorado made substantial changes impacting the sales tax collection and remittance requirements imposed on both in-state and remote sellers. The state extended a grace period for companies to comply with these requirements through May 31, 2019.
But beginning June 1, 2019, under the new rules, many wineries will be required to collect Colorado state sales tax and any local sales tax for state-administered localities. The rate will be determined based on the location of your Colorado customer. These rules specifically do not impact any obligation sellers may have in home-rule localities (these are localities in Colorado that have determined to administer their sales taxes entirely independent from the state agency).
New Obligations for Remote Sellers
In line with other states, the requirement is imposed on any organization that, in the previous or current calendar year has:
- $100,000 or more of gross sales or services delivered in Colorado, including exempt sales.
Any winery that meets this threshold will now have nexus in Colorado and be required to collect and remit sales taxes on their DtC shipments of wine to the state. (Previously the state had indicated that retailers making 200 or more transactions in the state would also have nexus; however, in the latest rules from the state, that threshold has been removed.)
This will require that the winery takes the following actions:
- Register with the Colorado Department of Revenue (DOR) as a Sales Tax Collector. This may be done at https://www.colorado.gov/revenueonline/_/. Any winery that had previously registered as a Use Tax Collector will need to amend its registration.
- During, or after, that registration the winery must also register under their Sales Tax Account for each tax jurisdiction that they will ship into. These jurisdictions are determined by the state, and while the winery is required to only register for those into which they actually ship, it may be worthwhile to register for all of them (683 in total) — the registration is at no cost.
- For each tax jurisdiction that the winery selects, the DOR will assign a unique four-digit code that must be attached to the winery’s Colorado Account Number when filing their Sales Tax Returns, in order for the state to process how local taxes should be disbursed.
- ShipCompliant users should make sure to enter these codes into their account so that we can properly populate the necessary Sales Tax Returns. We have recently added an upload function to our license portal so that a user can add all of their codes with one single action. If you are a ShipCompliant user you should receive direct messages soon that will more thoroughly explain how this should be done.
Wineries shipping DtC have long had to deal with sales tax rules and regulations across the country, so in many ways they are much more prepared for the post-Wayfair world of economic nexus to which other remote sellers are just getting used. Nevertheless, there are still states like Colorado that are presenting new challenges for DtC wineries (and Colorado, with its uniquely complex sales tax policies, makes that an extra challenge).
Wineries would do well to review their sales tax practices to ensure they are best enabled to handle the changing world of sales tax regulation. We at ShipCompliant by Sovos are committed to providing that enablement.