HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 09/15/2020 - SECOND READING OF ORDINANCE NO. 111, 2020, AMENDIN Agenda Item 5
Item # 5 Page 1
AGENDA ITEM SUMMARY September 15, 2020
City Council
STAFF
Jennifer Poznanovic, Project and Revenue Manager
Ryan Malarky, Legal
SUBJECT
Second Reading of Ordinance No. 111, 2020, Amending Chapter 25 of the Code of the City of Fort Collins
Regarding Economic Nexus and the Obligation of Remote Sellers to Collect and Remit Sales Tax.
EXECUTIVE SUMMARY
This Ordinance was amended on Second Reading to make a minor revision clarifyng the effective date on
page 6.
This Ordinance, unanimously adopted on First Reading on September 1, 2020, is based on a model ordinance
prepared by a working group of municipal attorneys and municipal finance staff, coordinated by the Colorado
Municipal League (CML) and requires remote sellers to collect and remit City sales tax. With adoption of the
Ordinance, the City Manager will enter into an agreement with the Colorado Department of Revenue to allow
such taxpayers to remit tax to the City using the Department’s single point of remittance software.
STAFF RECOMMENDATION
Staff recommends adoption of the Ordinance on Second Reading.
ATTACHMENTS
1. First Reading Agenda Item Summary, September 1, 2020, (w/o attachments) (PDF)
Agenda Item 13
Item # 13 Page 1
AGENDA ITEM SUMMARY September 1, 2020
City Council
STAFF
Jennifer Poznanovic, Project and Revenue Manager
Ryan Malarky, Legal
SUBJECT
First Reading of Ordinance No. 111, 2020, Amending Chapter 25 of the Code of the City of Fort Collins
Regarding Economic Nexus and the Obligation of Remote Sellers to Collect and Remit Sales Tax.
EXECUTIVE SUMMARY
The purpose of this item is to discuss the proposed adoption of an Ordinance to require remote sellers to collect
and remit City sales tax. The Ordinance is based on a model ordinance prepared by a working group of municipal
attorneys and municipal finance staff, coordinated by the Colorado Municipal League (CML). With adoption of
the Ordinance, the City Manager will enter into an agreement with the Colorado Department of Revenue to allow
such taxpayers to remit tax to the City using the Department’s single point of remittance software.
STAFF RECOMMENDATION
Staff recommends adoption of the Ordinance on First Reading.
BACKGROUND / DISCUSSION
U.S. Supreme Court Decision in South Dakota v. Wayfair, Inc.
Under the City’s sales and use tax ordinances, sales tax is levied on all sales and purchases of tangible personal
property and taxable services at retail unless prohibited under the constitution or other law of the United States.
In June 2018, the United States Supreme Court decided the case of South Dakota v. Wayfair, Inc., 138 S.Ct.
2080 (2018). South Dakota enacted a statute requiring internet sellers with no physical presence in the state to
collect and remit sales tax, which was not allowed under prior Supreme Court rulings. In Wayfair, the Supreme
Court overturned its prior rulings that had held that a state may only tax a retailer if that retailer has a physical
presence in the state. The Wayfair court held that an out-of-state retailer’s physical presence in the taxing state
is not necessary for the state to require the seller to collect and remit its sales tax. Rather, a state could require
an out-of-state retailer to collect and remit its sales tax if the retailer has a substantial economic nexus with the
state. The Supreme Court approved of South Dakota’s system finding it did not place an unconstitutional burden
on interstate commerce, because the system set a threshold amount below which smaller retailers did not have
to collect tax, provided a statewide single point of remittance and tax administration, simplified tax rate structures,
set other uniform rules, and applied only prospectively after its adoption.
The CML Sales Tax Simplification Committee met in October 2018 and all self-collected home rule municipalities
agreed to continue voluntary compliance to keep the municipal sales tax system in the state as simple as
possible. Through the Committee’s direction, a group of municipal attorneys and municipal finance staff worked
to develop a model ordinance with uniform definitions and requirements. The intent behind the model ordinance
is to clarify who can collect and remit taxes along with clarifying the authority given to taxing jurisdictions by the
U.S. Supreme Court in the Wayfair case. The stated goal behind the ordinance is uniformity and simplicity so
that all municipalities in Colorado can collect tax from online or remote retailers.
ATTACHMENT 1
Agenda Item 13
Item # 13 Page 2
Colorado Department of Revenue (DOR) Implementation of Wayfair
In July 2019, State House Bill 19-1240 established an economic nexus for purposes of state sales tax on retail
sales made by retailers without a physical presence in Colorado. As of October 2020, HB19-1240 requires
marketplace facilitators (a person that operates an online marketplace, such as Amazon) to collect and remit
sales tax on behalf of marketplace sellers (a person that sells goods through the online marketplace). While
HB19-1240 has set some precedent in Colorado for the collection of sales tax from retailers without physical
presence, its requirements do not apply to sales taxes imposed by home rule municipalities, which have their
own taxing authority under the Colorado Constitution.
In furtherance of HB19-1240, the Colorado Department of Revenue has developed a software system to allow
retailers a single point to remit sales tax. The Department has made the system available for home rule
municipalities to collectively provide retailers a system similar to the one operated by South Dakota. The
Department collects state and local sales tax from out-of-state retailers for those taxing entities for which it
already collects sales tax from in-state retailers. The Department collects for approximately 265 jurisdictions,
150 statutory cities, 24 home rule municipalities and all but two counties.
Colorado Department of Revenue’s Single Point of Remittance Software (SUTS System) & Single GIS
System
The Department’s single point of remittance software, including the SUTS System and GIS System, is an option
for the numerous self-collecting taxing jurisdictions to align more closely with the South Dakota tax system.
Remote sellers with sufficient economic nexus can file and pay tax via the SUTS System to those taxing
jurisdictions that have chosen to participate in the system. The SUTS System would be available for any
business, not just those whose only contact with the City is economic nexus. Businesses with physical presence
could file and remit taxes using the SUTS System. Businesses with physical presence in the City would still
need to have a Fort Collins sales tax license. The SUTS System vendor will charge a $17,500 fee to integrate
the SUTS System with the City’s current software, but the SUTS System can also be used manually without a
fee. The portal is essentially an additional filing option for businesses, meaning businesses could file on paper,
using the City’s online system, or via the Department’s SUTS System.
What Are Other Cities Doing?
Staff has had conversations with other municipalities regarding efforts those municipalities may make to require
remote sellers to collect and remit tax. Based on City staff’s most recent conversations, the following is a list of
municipalities and their possible course of action:
• Denver - Plans to participate, SUTS first and model ordinance later this fall.
• Colorado Springs - SUTS agreement and model ordinance already signed.
• Boulder - Plans to participate, SUTS first and model ordinance later this fall/early 2021.
• Aurora - Marketplace Facilitator adopted, SUTS System and Economic Nexus this fall.
• Golden -SUTS agreement signed, model ordinance later this summer.
• Thornton - Plans to participate, SUTS System first and model ordinance later.
• Centennial - Plans to participate, no use tax, may have issues with economic nexus.
According to the Department and CML, the more home rule municipalities that participate, the more likely it is
that the municipal sales tax system in Colorado will align with the South Dakota system approved in Wayfair. As
of August 10, 2020, 34% of self-collected home rule municipalities have the SUTS agreement under review,
35% are pending signatures, 28% are on the SUTS System and 3% have a staffing delay.
The Case for Self-Collected Home Rule Municipalities - Why Fort Collins is Not State-Collected
A major benefit for self-collected home rule municipalities is the authority to locally collect sales tax and maintain
control of their sales tax base. For example, the State of Colorado has 87 sales and use tax exemptions. Self-
collected home rule municipalities typically have broader sales tax bases than the State. Another advantage is
more targeted collection and enforcement. Local programs can more thoroughly educate businesses and follow
up with auditing where appropriate. The SUTS System and model ordinance are compatible with maintaining
home rule self-collecting status.
Agenda Item 13
Item # 13 Page 3
Top Internet Retailers Licensed in Fort Collins
Nationally, e-commerce represents 11.8%* of total retail sales. Of the top 10 U.S. companies based on
percentage of e-commerce sales, five are licensed in Fort Collins (see chart below).
*U.S. Census Quarterly Retail E-Commerce Sales 1st Quarter 2020
**Top 10 US companies based on % of e-commerce sales, eMarketer, July 2018
COVID-19 & e-commerce
During the current pandemic, e-commerce is quickly replacing physical channels. According to “The Quickening”
in McKinsey Quarterly 2020, U.S. e-commerce penetration has seen the same growth in three months as the
previous ten years of growth.
CITY FINANCIAL IMPACTS
Dollars at Stake
The State estimates $72 million in sales tax revenue in 2020 from retailers having economic nexus and
marketplace facilitators.* $72 million is equivalent to 2.1% of estimated State collections in 2020. In Fort Collins,
2.1% is equivalent to $2.5 million. It is important to note that some retailers are already remitting voluntarily in
Fort Collins.
Regarding marketplace facilitators, some have turned off collection of local taxes on behalf of sellers, leaving
them no way to collect the tax. Also, Amazon has indicated that more than half of the items sold on Amazon
are through their third-party marketplace.**
Additional sales tax staffing may be needed due to increased license volume and workload implications of
additional revenue. Staff will evaluate further, but current estimates are one full time employee (FTE) or a partial
FTE. With the implementation of the SUTS System, the Sales Tax Department will evaluate the need for software
integration or implementing a new software system.
*Colorado Legislative Council Staff – Economic & Revenue Forecast December 2019, p.28
**Amazon 2017 Annual Report, Letter to Shareholders
BOARD / COMMISSION RECOMMENDATION
On June 15, 2020, the Council Finance Committee supported bringing an ordinance for Council consideration
to require certain remote sellers and marketplace facilitators to collect and remit City sales tax.
Agenda Item 13
Item # 13 Page 4
ATTACHMENTS
1. Council Finance Committee Minutes (PDF)
2. Sales and Use Tax Software System Report (PDF)
3. Powerpoint Presentation (PDF)
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This Ordinance has been amended on page 5.
ORDINANCE NO. 111, 2020
OF THE COUNCIL OF THE CITY OF FORT COLLINS
AMENDING CHAPTER 25 OF THE CODE OF THE CITY OF FORT COLLINS
REGARDING ECONOMIC NEXUS AND THE OBLIGATION OF REMOTE SELLERS
TO COLLECT AND REMIT SALES TAX
WHEREAS, Fort Collins is a home rule municipality, organized and existing under
Article XX, Section 6 of the Colorado Constitution; and
WHEREAS, pursuant to Article XX, Section 6 of the Colorado Constitution, the right to
enact, administer and enforce sales tax is clearly within the constitutional grant of power to the
City and is necessary to raise revenue with which to conduct the affairs and render the services
performed by the City; and
WHEREAS, pursuant to such authority, the City Council has adopted and enacted Article
III of Chapter 25 of the City Code imposing a sales tax (the “Sales Tax Code”), under which City
sales tax is levied on all sales and purchases of tangible personal property or taxable services at
retail unless prohibited, as applicable to the provision of this Ordinance, under the Constitution
or laws of the United States; and
WHEREAS, the United States Supreme Court in South Dakota v. Wayfair, 138 S.Ct.
2080 (2018), overturned prior precedent and held that a State is not prohibited by the Commerce
Clause from requiring a retailer to collect sales tax based solely on the fact that such retailer does
not have a physical presence in the State (“Remote Sales”); and
WHEREAS, based upon the Wayfair decision, under the Constitution and laws of the
United States the retailer’s obligation to collect and remit tax due and owing on Remote Sales is
no longer based on the retailer’s physical presence in the jurisdiction , and the City’s Sales Tax
Code needs to be amended to clearly reflect such obligation consistent with said decision; and
WHEREAS, the delivery of tangible personal property, products, or services into the City
relies on and burdens local transportation systems, emergency and police services, waste
disposal, utilities and other infrastructure and services; and
WHEREAS, the failure to tax Remote Sales creates incentives for businesses to avoid a
physical presence in the State and its respective communities, resulting in fewer jobs and
increasing the share of taxes to those consumers who buy from competitors with a physical
presence in the State and its municipalities; and
WHEREAS, it is appropriate for Colorado municipalities to adopt uniform definitions
within their sales tax codes to encompass marketplace facilitators, marketplace sellers, and
multichannel sellers that do not have a physical presence in the City, but that still have a taxable
connection with the City; and
WHEREAS, the goal of adopting this ordinance is to join in on the simplification efforts
of all the self-collecting home rule municipalities in Colorado as facilitated by the Colorado
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Municipal League; and
WHEREAS, this ordinance provides a safe harbor to those who transact limited sales
within the City; and
WHEREAS, absent such amendment, the continued failure of retailers to voluntarily
apply and remit sales tax owed on remote sales exposes the City to unremitted taxes and permits
an inequitable exception that prevents market participants from competing on an even playing
field; and
WHEREAS, the Council adopts this Ordinance with the intent to address tax
administration, and, in connection therewith, establish economic nexus for retailers or vendors
without physical presence in the State and require each such retailer or vendor to collect and
remit sales tax for all sales made within the marketplace.
NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF
FORT COLLINS as follows:
Section 1. That the City Council hereby makes and adopts the determinations and
findings contained in the recitals set forth above.
Section 2. That Section 25-71 of the Code of the City of Fort Collins is hereby
amended to add certain definitions and amend certain existing definitions, to read as follows:
. . .
Economic nexus shall mean the connection between the City and any retailer not having a
physical nexus in the State of Colorado, which connection is established when the retailer meets
any one of the following criteria:
(1) In the previous calendar year, the retailer has made retail sales of goods or services
delivered into the State of Colorado exceeding the amount specified in C.R.S. § 39-26-102(3)(c),
as amended; or
(2) In the current calendar year, ninety (90) days has passed following the month in which
the retailer has made retail sales into the State of Colorado exceeding the amount specified in
C.R.S. § 39-26-102(3)(c), as amended.
This definition does not apply to any person who is doing business in this state but otherwise
applies to any other person.
Engaged in business in the City shall mean performing or providing services or selling, leasing,
renting, delivering or installing tangible personal property, products, or services for storage, use
or consumption within the City. Engaged in business in the City includes, but is not limited to,
any one of the following activities by a person or retailer:
(1) Directly, indirectly, or by a subsidiary maintaining a building, store, office, salesroom,
warehouse, or other place of business within the taxing jurisdiction;
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(2) Sending one (1) or more employees, agents or commissioned sales persons into the taxing
jurisdiction to solicit business or to install, assemble, repair, service, or assist in the use of its
products, or for demonstration or other reasons;
(3) Maintaining one (1) or more employees, agents or commissioned sales persons on duty at
a location within the taxing jurisdiction;
(4) Owning, leasing, renting or otherwise exercising control over real or personal property
within the taxing jurisdiction;
(5) As a retailer, who has a physical presence in the State of Colorado, making more than one
(1) retail sale of tangible personal property, products or services within a twelve (12) month
period, where the property or product is delivered by any means, including common carrier, to a
location within the City, or the service rendered occurs within the City; or
(6) Making retail sales sufficient to meet the definitional requirements of economic nexus as
defined in this Article.
. . .
Marketplace shall mean a physical or electronic forum, including, but not limited to, a store, a
booth, an internet website, a catalog, or a dedicated sales software application, where tangible
personal property, taxable products, or taxable services are offered for sale.
Marketplace facilitator shall mean a person who:
(1) Contracts with a marketplace seller or multichannel seller to facilitate for consideration,
regardless of whether or not the consideration is deducted as fees from the transaction, the sale of
the marketplace seller’s tangible personal property, products, or services through the person’s
marketplace or a marketplace operated by the person;
(2) Engages directly or indirectly, through one or more affiliated persons, in transmitting or
otherwise communicating the offer or acceptance between a purchaser or consumer and the
marketplace seller or multichannel seller; and
(3) Either directly or indirectly, through agreements or arrangements with third parties,
collects or accepts and processes payment from the purchaser or consumer on behalf of the
seller.
Marketplace facilitator does not include a person who exclusively provides internet advertising
services or lists products for sale, and that does not otherwise meet this definition.
Marketplace seller shall mean a person, regardless of whether or not the person is engaged in
business in the City, who has an agreement with a marketplace facilitator and offers for sale
tangible personal property, products, or services through a marketplace owned, operated, or
controlled by a marketplace facilitator.
. . .
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Multichannel seller shall mean a retailer that offers for sale tangible personal property,
commodities, or services through a marketplace owned, operated, or controlled by a marketplace
facilitator, and through other means.
Retailer shall mean any person selling, leasing, renting, or granting a license to use tangible
personal property or services at retail. Retailer shall include, but is not limited to, any:
(1) Auctioneer;
(2) Salesperson, representative, peddler or canvasser, who makes sales as a direct or indirect
agent of or obtains such property or services sold from a dealer, distributor, supervisor or
employer;
(3) Charitable organization or governmental entity which makes sales of tangible personal
property to the public, notwithstanding the fact that the merchandise sold may have been
acquired by gift or donation or that the proceeds are to be used for charitable or governmental
purposes; and
(4) Marketplace facilitator, marketplace seller, or multichannel seller.
. . .
Section 3. That Section 25-73 of the Code of the City of Fort Collins is hereby
amended to read as follows:
. . .
(b) Taxable transactions and items. The sales tax shall apply, without limitation, as follows:
. . .
(11) Upon all sales of preprinted newspaper supplements;
(12) Upon the purchase price paid for food, but only at the tax rate of two and twenty-five
hundredths (2.25) percent of the purchase price; and
(13) Upon marketplace sales, pursuant to § 25-131.
Section 4. That a new Section 25-131 of the Code of the City of Fort Collins is
hereby added to read as follows:
Sec. 25-131. Marketplace sales.
(a) Obligation to collect and remit tax.
(1) A marketplace facilitator engaged in business in the City is required to collect and remit
sales tax on all taxable sales made by the marketplace facilitator, or facilitated by it for
marketplace sellers or multichannel sellers, to customers in the City, whether or not the
marketplace seller for whom sales are facilitated would have been required to collect sales tax
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had the sale not been facilitated by the marketplace facilitator.
(2) A marketplace facilitator shall assume all the duties, responsibilities, and liabilities of a
retailer as defined in this Article. Marketplace facilitators shall be liable for the taxes collected
from marketplace sellers or multichannel sellers. The City may recover any unpaid taxes,
penalties, and interest from the marketplace facilitator that is responsible for collecting on behalf
of marketplace sellers or multichannel sellers.
(3) The liabilities, obligations, and rights set forth under this Article are in addition to any
duties and responsibilities of the marketplace facilitator under this Article if it also offers for sale
tangible personal property, products, or services through other means.
(4) A marketplace seller shall be subject to all the same licensing, collection, remittance,
filing and recordkeeping requirements as any other retailer under this Article for retail sales
made on its own behalf and not facilitated by or through a licensed marketplace facilitator in a
marketplace.
(b) Marketplace seller relief. A marketplace seller, with respect to sales of tangible personal
property, products, or services made in or through a marketplace facilitator’s marketplace, does
not have the liabilities, obligations, or rights of a retailer under this Article if the marketplace
seller can show that such sale was facilitated by a marketplace facilitator:
(1) With whom the marketplace seller has a contract that explicitly provides that the
marketplace facilitator will collect and remit sales tax on all sales subject to tax under this
Article; or
(2) From whom the marketplace seller requested and received in good faith a certification
that the marketplace facilitator is registered to collect sales tax and will collect sales tax on all
sales subject to tax under this Article made in or through the marketplace facilitator’s
marketplace.
(c) Auditing. With respect to any marketplace sale, the City shall solely audit the
marketplace facilitator for sales made by marketplace sellers or multichannel sellers but
facilitated by the marketplace. The City will not audit or otherwise assess tax against
marketplace sellers or multichannel sellers for sales facilitated by a marketplace facilitator.
(d) No retroactive application. The obligations to collect and remit the sales tax required by
this Section apply to taxable transactions occurring on or after the effective date of this Section.
Section 5. If any provision of this Ordinance, or the application of such provision to
any person or circumstance, is held to be unconstitutional or invalid for any reason, then the
remainder of this Ordinance, and the application of the such provisions to any person or
circumstance, shall not be affected thereby. The City Council hereby declares that it would have
passed this ordinance and each part or parts thereof irrespective of the fact that any one part or
parts be declared unconstitutional or invalid.
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Section 6. The requirements set forth in this Ordinance shall become effective [on
the first day of the month that is at least thirty (30) days after its effective date] on November 1,
2020.
Introduced, considered favorably on first reading, and ordered published this 1st day of
September, A.D. 2020, and to be presented for final passage on the 15th day of September, A.D.
2020.
__________________________________
Mayor
ATTEST:
_____________________________
City Clerk
Passed and adopted on final reading on this 15th day of September, A.D. 2020.
__________________________________
Mayor
ATTEST:
_____________________________
City Clerk