TITLE: CONCERNING THE COLLECTION OF SALES AND USE TAXES ON PURCHASES OF TANGIBLE PERSONAL PROPERTY BY PERSONS IN COLORADO FROM OUT-OF-STATE RETAILERS, AND, IN CONNECTION THEREWITH, SPECIFYING THE METHOD DEPENDING ON FEDERAL LEGISLATION FOR COLLECTING AND REMITTING LOCAL TAXES WHERE SUCH SALES ARE AFFECTED BY MAIL ORDER OR USE OF THE INTERNET.

STATE FISCAL IMPACT SUMMARY	FY 1998/99	FY 1999/2000
State Revenues General Fund Other Fund	Possible Increased General Fund Revenues
State Expenditures General Fund Other Fund	*	*
FTE Position Change	None	None
Local Government Impact —The bill would have a positive effect on sales or use tax collections for units of local government, contingent upon passage of federal legislation authorizing states to enter into agreements with out-of-state retailers for the collection of sales or use taxes.

*Administrative costs anticipated by the Department of Revenue for computer programming and data processing will not occur until after passage of required federal legislation.

This bill would authorize the Executive Director of the Department of Revenue to enter into an agreement with any out-of-state retailer to voluntarily file an application for a license to collect and remit Colorado state sales or use tax and the local sales or use tax of each political subdivision of the state that imposes a tax on the sales of tangible personal property affected through mail order or internet sales by the out-of-state retailer. The Executive Director of the Department of Revenue could establish an in-lieu rate for local sales or use tax collections. The in-lieu fees remitted to the Department of Revenue would be distributed to political subdivisions of the state in accordance with a formula established by the Department based on the federal legislation.

The provisions of the bill would only be applicable following the passage of federal legislation authorizing states to enter into agreements with out-of-state retailers that voluntarily agree to collect sales or use taxes on sales of tangible personal property through mail order or use of the internet by the retailer. The federal legislation must include a provision authorizing the fee in-lieu of collecting the local sales or use tax at the local tax rate of each political subdivision imposing a tax or authorizing collection of the actual local sales or use tax.

Since the sales or use tax collection procedures are contingent on passage of federal legislation authorizing states to enter into agreements with out-of-state retailers, the bill is assessed as having conditional state and local fiscal impact. The timing of possible federal legislation in not known. The bill would become effective upon signature of the Governor.

Legislative Council staff has projected the state’s revenues that will be in excess of the state fiscal year spending limitation for the 1998-99 fiscal year, as required by Section 20 of Article X of the State Constitution to be $286.10 million. This bill would allow for the collection of additional sales or use tax revenue at the state and local level following passage of federal legislation authorizing states to enter into agreements with out-of-state retailers for the voluntary collection of the taxes by those retailers. This may increase state revenues in the future. The number of retailers that may enter into voluntary sales tax collection agreements is not known. Similarly, the amount of additional sales tax revenues that may be generated through these agreements in the future has not been estimated.

Section 20 of Article X of the Colorado Constitution, limits the maximum annual percentage increase in state fiscal year spending. Once total state revenue from all sources that are not specifically excluded from fiscal year spending exceeds these limits for the fiscal year, the state constitution requires that the excess shall be refunded in the next fiscal year unless voters approve a revenue change as an offset. Based on the current Legislative Council economic forecast, it is projected that the state will be in a TABOR refund position during each of the next five fiscal years. Any increase or decrease in state revenue from changes in fees, fines, licenses, or other revenue sources will affect the amount of the state revenue to be refunded.

The Department of Revenue indicates that in order to enter into voluntary agreements with out-of-state retailers, certain administrative expenses will be necessary. For example, the Information Technology Division will require 1,200 hours of contract programming time at a cost of $60,000 (1,200 hours x $50/hour) for creating a new form, adding new accounts, and creating the algorithm for the distribution of the local sales tax collections. In addition, the processing of additional sales tax returns will impact department workload. Until federal legislation is passed, and the number of annual voluntary agreements is known, these costs cannot accurately be determined.

The bill would have a positive effect on sales or use tax collections for units of local government, contingent upon passage of federal legislation authorizing states to enter into agreements with out-of-state retailers selling through mail order or use of the internet for the collection of sales or use taxes.

The fiscal note would imply that no appropriations or spending authority are required in FY 1998-99 to implement the provisions of the bill.