Collecting Taxes on a Lease after June 1, 2019
You will recall that last year, the Department of Revenue created a "nexus" regulation that was designed to take effect on December 1, 2018. After serious push back from industry - including CADA - the regulators agreed to a compliance grace period until Jun 1, 2019. This gave the legislature the ability to pass a separate post-Wayfair law that may override the regulation regarding how Colorado would tax out of state retailers, and all of the other items that the Department wrote into the 12/1 regulation.
For what it's worth, SB19-006 and HB19-1240 (see Legislation section), did push the tax simplification movement in the right direction. However, as we now approach June 1st, the auto industry is preparing for compliance with the nexus regulation. Over the past several months, no question has been more discussed than, how do I collect taxes on a leased vehicle? I will try to dissect that here.
State Taxes and Special Taxing Districts
State statute (C.R.S. 39-26-102(3)) holds that for leases of longer than 3 years, taxes must be collected in the lease payments. For leases that are 36 months or shorter, C.R.S. 39-26-713(1)(a) allows that taxes may be paid either upfront or rolled into the payments. Known as the '36-month rule' this provides the dealer discretion about when to collect taxes. However, many captive leasing companies have written their dealers, notifying them that if the lender is to purchase any contracts, all taxes must be rolled into the payments, regardless of the term of the lease. Since this demand does comply with the law, it is one the captives may make.
It is important to note however, that the above sections of law apply ONLY to state leases and special taxing districts. County and city taxes are established under a separate section of law.
Counties are given the discretion to determine when they collect their county tax. The rate at which counties tax is most easily determined by referencing Colorado Form DR 1002. This lists all counties, state-collected cities, and self-collected home rule cities along side their respective county or municipal tax rates. While I am working through each county, nearly every clerk I have spoken to thus far states that the counties want their taxes collected upfront - regardless of the term of the lease. Two exceptions to that rule are Weld County (with no county level sales tax) and Larimer County (who will follow the state's 36-month rule). But, dealers should expect that county DMV's will refuse to register a car until the county tax has been collected. It is, however, helpful to communicate with your county clerk to verify those decisions. Ultimately, a dealer should whatever is necessary to get a consumer registered and worry about the county's technical compliance after the fact.
The most complicating factor in this mess is how Colorado's 73 home-rule cities will make a demand for their taxes. Even if you are compliant with a county, the larger counties contain multiple cities empowered to make their own tax rules and rates. There is little agreement about how municipal taxes will be collected. Certain counties, like Jefferson and Adams, have created guides to their home rules' preferences. Other counties have not. CADA is attempting to collaborate with the remaining counties and cities to create a document inclusive of all 73 home rules, by county, for dealer reference. As soon as that document is ready, it will be posted to this site and included in CADA publications.