Colorado’s Orwellian Consumer Use Tax Statutes

If you live in Colorado, likely you are technically a criminal—and possibly a felon—under Colorado tax law. By my reading of Colorado statutes, you’re a criminal if you’ve purchased items from out of state, either while traveling or through mail order (such as through Amazon), on which sales tax has not been collected, if you have not paid the “consumer use tax” on the item. Due to widespread ignorance of the relevant tax laws and lack of enforcement, most people do not pay the “consumer use tax”—or even know they’re legally supposed to pay it.

The Colorado legislature could implement a relatively simple fix for this problem. As I write in an article for Complete Colorado (also published by the Greeley Tribune), the legislature could exempt, “say, a person’s first $6,000 per year in out-of-state purchases—that’s $500 per month—from consumer use taxes.” That simple reform would turn many or most Coloradans from criminals into non-criminals.

I’ve been amazed by how many people are unaware of the consumer use tax laws. I talked with one state legislator who had never even heard of this tax. (I wonder how many state legislators technically are criminals under the law.) I talked with a former state legislator who claimed the consumer use tax is due only for items purchased from businesses with an in-state presence—which is not the case. (Out-of-state retailers have to collect Colorado sales tax if they have a Colorado presence, such as a retail outlet or warehouse, but this isn’t relevant to the consumer use tax.) So let’s explore what the rules are.

Here’s how the Colorado Department of Revenue summarizes the tax:

Consumer use tax must be paid by Colorado residents and businesses on purchases (items used for personal or business purposes, not resold) that did not include Colorado sales tax, such as those made over the Internet, by mail order, or by telephone. Consumer use tax is payable to the state by individuals and businesses when sales tax is due but has not been collected. Individuals and businesses have always been required to pay sales or use tax on taxable purchases from out-of-state vendors if the item is sold, leased, or delivered in Colorado for use, storage, distribution, or consumption in the state.

Colorado state use tax is the same rate as the sales tax. With proof of payment, sales tax paid to another state may be credited against state use tax due in Colorado for a particular item. Use tax is also collected by some local governments and special districts.

And here’s what various statutes say (as linked via the Colorado legislature page):

39-26-202(b): On and after January 1, 2001, there is imposed and shall be collected from every person in this state a tax or excise at the rate of two and ninety one-hundredths percent of storage or acquisition charges or costs for the privilege of storing, using, or consuming in this state any articles of tangible personal property purchased at retail.

39-26-204(1)(b) [Article 26, Sales and Use Tax; Part 2, Use Tax]: (b) Every person who is subject to the provisions of this part 2 who uses, stores, or consumes tangible personal property not in the conduct of a business, which is purchased either inside or outside this state, who has not paid the sales or use tax imposed by this article to a retailer, shall make a return and remit the tax annually, at the time the Colorado income tax of such person is due and payable as provided in article 22 of this title, on forms prescribed by the executive director, showing in detail the tangible personal property stored, used, or consumed by said persons within this state for the preceding taxable year.

(c) All such returns shall be subscribed by the taxpayer or his agent and shall contain a written declaration that it is made under the penalties of perjury in the second degree.

39-26-206: Any person who willfully fails or refuses to make the return required in section 39-26-204, or who makes a false or fraudulent return, or who willfully fails to pay any tax owing by him, and any person who aids or abets another in an attempt to evade such tax, shall be punished as provided by section 39-21-118.

39-21-118: (1) Any person who willfully attempts in any manner to evade or defeat any tax administered by the department or the payment thereof, in addition to other penalties provided by law, is guilty of a class 5 felony and, upon conviction thereof, shall be punished as provided in section 18-1.3-401, C.R.S., or shall be punished by a fine of not more than one hundred thousand dollars, or five hundred thousand dollars in the case of a corporation, or by both such fine and imprisonment, together with the costs of prosecution.

(2) Any person required, or any person who purports to be required, under any title administered by the department to collect, account for, or pay over any tax, who willfully fails to collect or truthfully account for or pay over such tax, including, but not limited to, willfully making a materially false statement in connection with an application for a refund of any tax for the purpose of falsely obtaining a refund of such tax, in addition to other penalties provided by law, is guilty of a class 5 felony and, upon conviction thereof, shall be punished as provided in section 18-1.3-401, C.R.S., or shall be punished by a fine of not more than one hundred thousand dollars, or five hundred thousand dollars in the case of a corporation, or by both such fine and imprisonment, together with the costs of prosecution.

(2.5) Any person who through gross negligence or recklessness makes a materially false statement in applying for a refund pursuant to section 39-26-703 or any other person who makes a false statement in connection with an application for a refund is guilty of a misdemeanor and, upon conviction, shall be punished by a fine of not more than five hundred dollars, or by imprisonment in the county jail for not more than ninety days, or by both such fine and imprisonment.

By my reading of Colorado statutes, then, every Coloradan who buys items out of state, on which sales tax has not been collected, is legally required to pay the consumer use tax. (Please note that I am not a lawyer, and the statutes can be very confusing and difficult to interpret. To date, though, no one has offered any evidence that my reading is wrong.)

But are Coloradans who don’t pay the use tax actually felons? Note that statute 39-21-118(1) refers to “willful” evasion of the tax. This presents the Kafkaesque scenario in which, if you don’t know about the use tax, you’re not a felon, but if you do know about it and don’t pay it, you are a felon. So it could very well be that simply by reading this article and learning you’re legally supposed to pay the consumer use tax, you have become a felon (you’re welcome).

Obviously, what is “willful” as opposed to unwillful is largely a matter of interpretation. And what is the meaning of the line about “any person who purports to be required” to pay the tax? Does that mean that, simply by saying you owe any tax, whether or not you’re mistaken about the statutes, you owe it? These statutes are absurd, and they open to door to prosecutorial abuse.

If I could, I would simply do away with all sales taxes and use taxes, even if that meant increasing state income taxes in a revenue-neutral way. Such a far-reaching reform seems unlikely in the near future. However, the modest proposal I’ve offered, to exempt a person’s first $6,000 per year in out-of-state purchases from consumer use taxes, would go a long way toward solving the problem of unjustly criminalizing vast numbers of Coloradans.