Colorado’s recent elimination of the vendor fee marks a major shift in the state’s sales and use tax system, with big implications for small businesses and the wider economy. In this episode, we continue our conversation with Jenn Penn and Shanah Schaffer, breaking down what this change means for compliance, operational challenges, and the business community at large. 

Together, we explore how business owners can collaborate to navigate these changes and advocate for a fairer tax landscape. 

Key Takeaways:

• Vendor fee elimination impacts small businesses.
• Coalition works to simplify tax compliance.
• Collaboration helps navigate tax complexities.
• Legislative efforts address budget and policy changes.

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Welcome to Saltovation.

The Saltovation show is a podcast series featuring the leading voices in SALT where we talk about the issues and strategies to help you make sense of state and local tax.

In part two of our conversation with Jenn Penn, Shanah Schaffer, Judy Vondran, and Meredith Smith, we dive deeper in the Colorado sales and use tax landscape, from the removal of the vendor fee to ongoing efforts towards simplification and consistency.

The group discusses the work of the Simplified Colorado Sales and Use Tax Coalition, recent legislative updates, and what's ahead for businesses navigating these changes. Let's jump back in.

Unfortunately, we did have a significant change in Colorado that, you know, no one really wanted to kind of help with our, you know, over a trillion dollar budget deficit or billion dollar budget deficit. Um, so Colorado recently removed the vendor.

Fee available to sales taxpayers.

Would either of you be open to sharing your thoughts on that?

It wasn't even that big of a plug financially to the state. I was very disheartened that they were punishing those that are contributing. I might go after. We all have 100,000 registrants at the state level.

There are a million companies that probably are doing business with Coloradans. Why aren't we getting the people that aren't complying? Why are we punishing the people that are by taking away a little bit of a thank you.

So I was very disappointed.

I know it's an easy way to fill the bill because it's not a tax, but I just feel like we're punishing the people that are complying instead of going out and getting others who could comply and should comply. So that's just disheartening to me and.

It is, it's disheartening. But unfortunately it was kind of low hanging fruit and a couple of reasons why.

So the state constitution for the state of Colorado has a constitutional requirement to have a balanced budget every year.

So that requires any tax increase or major tax policy change to go to the voters. For a voter, the people.

So when you are looking at like vendor fee allowance and other things, these are the type of things, delivery fees, these are the kind of things that the legislature can make those policy changes that will generate revenue to for the state to offset the budget deficit, which is about A billion dollars in order to work towards balancing, but in a way that they don't have to go to vote of the people. I believe the vendor fee elimination for small businesses, I think it was estimated around $60 million is what it will raise.

But that is going to be really hard felt for a lot of our small businesses.

Well, it's already limited because they were limiting it to what, a thousand a vendor anyway and used to be like, like 3% of the total sales tax you remitted. And people remit hundreds of thousands of dollars of sales tax that have lot large volume sales.

And so it was a huge push even to take away that benefit. A thousand dollars to file the tax return. There's no. I mean really, our tax return costs more than a thousand to do manually. It's a lot of work.

And a few years ago, a few years ago, the legislature actually eliminated the vendor fee for any larger businesses. So any business making more than $1 million a year, that vendor fee was already eliminated a few years ago.

Yeah, it really hits a small business. Small business. Especially the compliance. To me, we've run numbers, we say it costs at least 200,000 a year to manage compliance in America.

Software, a person, the filing, audits. That's the true cost to actually have a tax department. So people outsource it through different software companies. They think they can do it.

They have somebody supervise it. They hire someone like Shanna to do it. They hire us. But it's not cheap to manage a compliance. And this is only one state.

Our state is more difficult than the entire nation because we have 71 jurisdictions at the city level and the state. So we are much more difficult to manage in and of itself than the entire nation. So we have got to fix this problem so that people are more compliant.

I was just talking to a client this morning and they're like, we won't.

We.

We won't do business in Colorado anymore. I hadn't really heard that.

I feel like we've been growing, but they actually have a sour taste in their mouth about our state because of our home rules. And that is super sad to me to hear because I'm from out of state, I'm a Californian, and I love it here.

And it's a beautiful city that I live in in Denver, and I'm very happy to pay my taxes so I can have composting and you know, trash recycling and I just like all the things the services my city provides me. So I'm grateful for my cities because that's my community and I've got to get that tax into them to support that.

So I just think people don't realize like all the entitlements we have, our airports, all the things that the cities and the states and the towns and the they pay for, that we all benefit from collectively. But that I was going to bring up also our vendor fee since we had put that in place. I just about quit my life. I was like, I can't do this anymore.

Yeah, I, I, I almost had a heart attack on that one because that was a transportation bill not had to be administered by department revenue, but wasn't even put in place by them. So it was one of those whipsaw thing that has really brought in a lot of money. So it's not going away either.

So why are we doing these things to our vendor community and, and ultimately costs us money. The humans that buy things. Right. We' so it's just an interesting dichotomy. We need to make it easier.

I think that's why the coalition is so important and it's so important that we have other business owners being a part and giving us those stories because that's the way that we know how to fight the fight and have the stories to support it. I think that's what's really important.

I don't know if you remember, were you there? TRAPP mayor and I, Meredith and I were at the meeting.

There were hundreds of people there with Department of Rev when they went to destination sourcing.

When the Wayfarer law passed and they went from location and comment to destination sourcing, tons of people were cycling through, talking to the department. People were crying. They were totally bereft. I was so sad to see this business community give their explanation. And here we are. We're still there.

They did it.

We're still there. And Colorado is supposed to be one of the best small business friendly states in this country.

And so we all have to work together to keep it that way.

Agreed.

I love my state too. I really do. And I want to make sure that we all have a, have a piece in this year.

Agreed.

So then what's next for the coalition?

Well, our board will direct me as the coalition manager and the lobbyist on those next steps. The board had a strategic planning session and we have a variety of initiatives for 20, 26 and beyond, and we're always looking for more ideas.

We worked with our friends at the Colorado Municipal League, which is basically an association of all your cities and local jurisdictions to go through and, you know, put common definitions together in a model ordinance for all these local jurisdictions to adopt.

That has mostly been done, but what we have figured out, you know, 10, 11 years later, is that definitions change and there are more things to be defined that are not defined already. So. So I had a meeting with the Municipal League earlier this week.

We are working to gather those definitions, where those gaps of definitions are in the Uniform Definitions Project. And we are going to be sending our feedback to the Municipal League within the next couple of weeks. So that's one thing we're working on.

We are also working with the Municipal League League on a tax, excuse me, use tax compliance document.

That is a effort that was started a couple of years ago through legislation directing the business community, Simplify and our construction allies to work with the Municipal League to create a use tax compliance document around building permits and construction materials. That project is going forward. We have made significant progress and.

And after the next round or two of edits that will go public for these local jurisdictions to work on sales tax compliance in a model uniform way.

Yes.

So that is all again being pushed by the coalition. And so you may not be seeing the fruits of that labor yet, but coming soon.

And you won't really see it anyway because it's really being happening in the construction community, which builds a lot of things in our community. And they are supposed to pay use tax on their inputs. And you have it at the state level, you have at the city level.

And how the city's permit jobs is very different. How the use tax is paid at the city level is very different. So it's just. No, there's no parity.

And it makes it very hard for the business community, especially an out of stater who doesn't understand home rules or even someone who's doing predistance probably in Denver, to go to Commerce City and know that Commerce City is a whole different set of rules and wranglings. And I think the biggest challenge other than commodity is the interpretation of. Of the same words.

I have a case right now about what is a car wash. Is a car wash subject to say is it a service or is it the rental of property? We are not consistent in our interpretation at the city level even if we have the same words in our statutes.

And I think that really is a problem for business. It should not be a gotcha. It just it's.

I'm really passionate about fixing that because if you don't make your interpretations clear to the government community, to the business community and you only do it through an audit, you, you are crushing that business and not all the.

And not being equitable amongst all the businesses because nobody knows how you're going to interpret it when you get in there in their, in their business records. So it's really problematic for the business community.

Yep. Couple of other things we're working on. We are working on getting use tax added to suts. So that's another big one.

So we will continue to push on that. We're working with the state and Department of Revenue and others on that effort.

We passed legislation this past legislative session around taxpayer lookup. So you can look up with business name versus having to look up with the business ID number which you may or may not have known. Now we can will be.

The department is in the process of making those changes to their website. But coming soon you'll be able to look, look up for your sales tax returns by business name or by those vendors that you work with and use tax.

So by this huge issue that they.

Thought that was a privacy issue. And I'm like the Secretary of State is got the same information. How is that privacy?

So I think the state didn't even realize there wasn't a privacy issue. They hadn't even thought about it. But you have another agency that's government run.

You can look up any business through our secretary of state website. It is not a private issue. So now the Department of Revenue understands that they're like, oh, we can build that. We just hadn't thought we could.

Well, of course that information is readily available through secretary of State. Now mind you people at DBAs, they do different things when they license themselves or they might have an entity that's registered in a different.

An entity, a Secretary of State and a different entry that's a registrant for sales tax because it's FBI and driven. And so they are not always married together because of the way people set up businesses. And that is okay.

But the state can certainly get that information Other states that give that information, there's no reason we should not. So that was a huge issue to make that explanation clear to our state government employees so they could get.

Buy in to get it done and not have a fear of repercussions, of disclosing something that was somehow supposed to be kept confidential. Not confident.

We actually, we did have to change the statute around confidentiality under the Department of Revenue.

Yeah.

Secretary State has a separate statute that governs them as their separate department.

Yep.

So I know again, government is complicated and that's why you need to have people, people like me and coalition and.

We need to pay them so they can pay attention because I have a business to run and so does Shannon, so does Meriden. We have other things to do besides simplifying Colorado sales tax. So we need people to pitch in. So.

Absolutely.

We can have people do the work that needs to be done at the legislature.

Absolutely. Yeah. Yeah. So we're also exploring other things to do. We did pass a bill on audits last year, so we're. And.

But there's still a lot of work to be done on audits. And so we're, we're working on that.

The bill last year had to do with trigger audits and making sure that confidential information isn't being shared by third party auditors between local jurisdictions.

So if you're getting audited in one in Denver, but the auditor is the same third party auditor that that information can't be shared for that auditor to go and drum up business in Commerce City and Lakewood and Telluride or wherever. And so it keeps that information confidential.

If you're getting audited by a third party auditor in one local jurisdictions because unfortunately we were seeing some of our taxpayers, if they were going through an audit in one local jurisdiction, we were seeing trigger aud or all of a sudden they go from one audit to five or ten audits. And that is hugely burdensome for the business as well.

Well, and I think that's going to be really important coming up because the city and county of Denver has a $200 million budget shortfall.

Right.

And so Denver's not going to be the only city.

And so if taxpayers can feel that like they're not being targeted because, you know, one thing happened somewhere and somewhere else, I think that's going to be really kind of helpful. You know, as. As our cities are not where they want to be per se, you know, fiscally.

Yeah.

And I know years ago, Wakefield Research, we did a study on what the average cost of A sales tax audit does. And it was 100,000. That's right. 10 years ago. $100,000 in time effort money tax owed penalties for one jurisdiction.

I think people don't realize audits are hugely expensive, onerous, time consuming, they're no fun. So that's just add to that. Right.

So making the compliance easier, make the rules easier to follow so that we can actually give everybody money and have low risk on an audit. That's important too.

All of those things are on our, on our to do list.

And we are really focusing on lodging taxes. But I know we were sort of talking about that. Right?

Yeah.

And so that was something that we worked on both for sales tax friends in the community and for lodging tax partners.

Because one of the things that was happening was when you go to file these returns in these local jurisdictions, the local jurisdiction was also asking you for a variety of information that may or may not be readily available, especially if you're using a CPA.

Yep.

So provides uniformity and standards for reporting requirements across all local jurisdiction and the collection with the collection of remittance of local lodging taxes and others. So it says that I forget all the things we passed because it's hard to, it's hard, it's hard to memorize 17 bills.

But we're trying to make it better on the business community.

And what we learned some history about that which I thought was fascinating because they thought, well, this will ease complexity to have trigger audits to some degree. Like you want to get audited, just have them all audit you with this same time. But business doesn't really want that. It's not efficient for them.

But I think when it all started 30 plus, you know, years ago with the home rules, like they're like, oh, it'll be easier. No, it's not easier at all. It's easier to focus on a few things at a time than to focus on many.

So I think that there was just some very misguided thinking 30 plus years ago that, you know, has changed to today's market. So I think it, I just think it's just things have changed, you know, about how we do things and where we do business.

So, yeah, we need to make that simpler on the tax paying community and the business community.

Absolutely.

It seems like the state likes to pass more rules and regulations and we're here to fight some of those and roll them back and to make sure that however they're, whatever they're passing is working towards simplifying sales and use tax.

Yep. And then we get wind of things. Right. We got, you know, Colorado's looking to maybe tax software, so we weigh in on that. Right.

So we are, you know, we defeat that.

Yeah. So that's for now. Yeah, that was for now.

And that definitional interpretation, that's not even a change of law. So they're arguing it's not a taper violation, it's just an reinterpretation of the same words to expand the base.

So we're trying to keep everybody honest about what was done historically, what could be done, what should be done, and whether it's the right thing for the business community. So it's a.

We're trying to stay in the pulse besides pushing for change, where we're adapting to things that happen and try to weigh in on it and at least have a voice. Like we spoke on the delivery fee. We tried to give examples to dissuade legislators.

We were not successful because they felt that was a quicker budget gap, easier to get done than, you know, finding another way to raise money. So unfortunately. But we were still heard, we were recorded, that information is out there. And someday we'll say, we told you so.

You should have listened to us.

And they can do that without triggering tabor.

And we can, of course, use all businesses, small businesses, large businesses, anybody who uses downloadable software to engage in this fight. With us. Yep. Well.

And so thank you ladies for your work with the coalition. Thank you.

To those businesses that are putting their name out there, please, other businesses doesn't have to just be Colorado based businesses out of state. Right. You have a responsibility for Colorado sales tax as well and this could benefit you too. So thank you ladies for your time.

We have a lot of different ways.

Yeah. Yeah.

Can we say the two ways to join really quick? We love to grow our board. So Simplify Colorado and Sales Tax Coalition has a board of directors.

That board is outlined and those members are outlined on our website.

If you're interested in joining the board, you can reach out to me through the website or directly at Jen domestrategies.com domestrategies.com, jen with two NS and we also have what we call a small business advocate membership. So those members would be $150 a year. And you don't get to participate or vote on our board but you will be briefed by major issues.

You'll be added to an email updates for Simplified Colorado Sales and Use Tax Coalition.

We're going to have an annual meeting with the those small business advocates, with our board and with me that will brief all of the advocates on what's happening and what we can do to engage. You'll be a part of our action alerts and you'll also get exclusive invitations to Simplify Colorado sales tax events. Yep.

But mostly it's about paying, you know, pay attention people this matters and our example is such a great example to compare to other jurisdictions. Honestly as a business owner, you know I use the example since we advise mayor and I behalf of all the country.

We don't just deal with Colorado but we are located here. So we do know spare probably better than a lot of other taxpayers or advisors.

But what you're seeing is this whole thing across our nation where any transaction is either taxable or not. You have to deal with that compliance. If you're going to sell to any citizen in any state you have to know what you're doing.

So there is a tremendous amount of non compliance in our nation and and for foreign because people don't really understand how complicated the issue is. So if you get involved you're more aware, you know and then you can understand your business community.

There's other things you're going to get a benefit out of is just to understand who's doing what and who your buyers are.

So you get a lot of benefit out of our coalition to understand all the different businesses that are operating in our state that you might want to do business with, quite honestly. So I think there is a huge benefit to being a belonging, and obviously that's why I've done it since the beginning.

I mean, I've just been so passionate about representing the small to medium business community and really make effective change. And that's why I've sat on this board all this time. And you don't have to give to that level.

But I do have opinions because I work with small business and big business and I want to see greater compliance.

Thank you so much. And this is another episode of Saltivation. Till next time.

This podcast is for educational purposes only and is not intended, nor should it be relied upon as legal, tax, accounting or investment advice. You should consult with a competent professional to discuss specifics of your situation and the applicability of the information presented.