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Colorado Retailers Face Loss of Tax Collection Allowance Until 2011

NEW YORK -- With more state governments under increasing financial pressure, look for local polls to shift an even greater share of the tax burden on retailers.

In Colorado that means taking away a fee aimed at compensating retailers for collecting sales tax from shoppers.

Currently, 29 states award a vendor’s allowance to retailers to reimburse them for the trouble of collecting and remitting sales and use taxes. The allowance ranges from 5 percent of collected taxes in New York to 0.33 percent in Michigan. In Colorado, it was 3.33 percent—until recently.

Under legislation enacted earlier this year, the vendor’s allowance in Colorado was reduced to 1.35 percent of taxes filed or reported between March 1 and July 1, 2009. After July 1, the allowance was eliminated altogether for two years, to be reinstated June 30, 2011. If certain state revenue forecasts are met, however, the allowance will be reinstated six months earlier, Jan. 1, 2011.

Colorado is not the first state to reduce the allowance. Driven by falling tax revenues, Nevada dropped it from 0.5 percent to 0.25 percent for six months, from Jan. 1, through June 30, 2009. And proposals to repeal the allowance have been offered in Virginia, Illinois and Pennsylvania. But Colorado is the first state that paid the allowance to eliminate it altogether for any period of time.

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