Colo. Code Regs. 39-26-105.3

Current through Register Vol. 47, No. 11, June 10, 2024

Rule 39-26-105.3 - Electronic Address Databases

Basis and Purpose. The bases for this rule are §§ 39-21-112, 39-26-105.3, and 39-26-204.5, C.R.S. The purpose of this rule is to establish procedures and requirements for the testing and certification of electronic address databases and to establish the criteria retailers must meet to be held harmless for tax underpayments resulting from use of a certified database.

(1)Definitions. As used in this rule, unless context otherwise requires:

(a) "Database" means a system that specifies the taxing jurisdictions that have the authority to impose a tax on purchases made at each address in Colorado. A "System" may consist of one or more software applications and/or other electronic processes.

(b) "Department" means the Department of Revenue.

(c) "Local Tax Jurisdiction" includes every governmental entity and special district located within Colorado, other than the State of Colorado, that has the authority to levy a sales and/or use tax

(d) "Provider" means a person, company, or other entity that owns and/or operates a Database.

(e) "Verifier" means a person, company, or entity designated by the Department to conduct testing of Databases and verify that said Databases satisfy the requirements of § 39-26-105.3, C.R.S. and this rule. In such case that the Department directly conducts testing and verification, the term "Verifier" means the Department.

(2)Procedure for Certification.

(a) A Provider may request the Department certify its Database by submitting an application in accordance with Department instructions. The Department may request information in support of an application including, but not limited to, the Provider's name (including trade name) and address; the name, address, telephone number, and email address of the person representing the Provider to whom the Department shall direct communications; and sufficient information so as to specifically identify the Database and System, including any version number or similar designation.

(b) Upon receipt of an application and any additional information the Department requests, the Department shall direct the Verifier to initiate the testing process prescribed in subsection (3) of this rule. If the Database satisfies the requirements set forth in § 39-26-105.3, C.R.S. and this rule, the Department shall issue written certification to the Provider stating that the Database is certified subject to the limitations and conditions set forth in § 39-26-105.3, C.R.S. and this rule.

(c)Effective Date / Expiration Date. The certification shall be effective for three years, beginning with the date the Department issues notice of certification. The certification shall expire automatically three years from the effective date. A Provider may, prior to the expiration of certification, apply for recertification. The process for recertification shall be the same as the process for initial certification.

(d)List of Certified Databases. For each Database that has been certified pursuant to this rule, the Department shall list on its web site:

(i) the Provider's name, website address, and contact information;

(ii) the Database and System receiving certification;

(iii) the effective date of the certification; and

(iv) the expiration date for the certification or, in the case of revocation under subsection (5) of this rule, the date such revocation is effective.

(e)Rules Subject to Modification. The Department may amend this rule. Any Provider owning and/or operating a certified Database may be required to comply with any additional requirements included in the amended rule including, but not limited to retesting pursuant to any revised testing requirements.

(3)Testing and Verification.

(a) Upon the direction of the Department as described in paragraph (2)(b) of this rule, the Verifier shall commence the testing and verification process as set forth in this subsection (3). In execution of the testing and verification process the Verifier shall:

(i) create a test sample and answer key for use in evaluating the accuracy of the Provider's Database;

(ii) transmit the test sample electronically to the applying Provider;

(iii) receive the Database responses for the test sample from the Provider; and

(iv) evaluate the submitted responses for accuracy and produce a report.

(b)Creation of Test Sample. The Verifier shall create the test sample in accordance with all requirements of this paragraph (b).

(i) The test sample shall consist of not less than 2000 physical addresses located in Colorado. The addresses in the test sample shall be selected at random from the full population of business addresses in with active sales tax licenses according to Department records. The Department shall review and confirm the statistical validity of the test sample prior to the administration of the test. The determination of the statistical validity of the test sample shall be within the sole discretion of the Department.

(ii) The Verifier may supplement the test with additional addresses. The Verifier may solicit such supplemental addresses from Local Tax Jurisdictions.

(iii) In addition to the test sample, the Verifier shall create a key that specifies all state and local jurisdictions authorized to impose a tax on purchases made at each address included in the test sample. Such key must be created using information from Department records and, where deemed necessary by the Verifier, may be further verified with local treasurer and assessor records.

(iv) The Verifier shall provide the test sample and the accompanying key to each Local Tax Jurisdiction. The Local Tax Jurisdiction shall have 30 days to verify the accuracy of the key and dispute any information contained therein. If the Local Tax Jurisdiction disputes any of the information contained in the key, such dispute will be resolved by reference to the applicable treasurer or assessor records.

(c) The Verifier shall transmit an electronic copy of the test sample to the applying Provider. Using its Database, the Provider shall, with respect to purchases made at each address included in the test sample, identify all jurisdictions with the authority to impose a tax. The Provider shall submit, in the form and within the time prescribed by the Verifier, a list of all jurisdictions so identified with respect to each address in the test sample.

(d) Upon receipt of the Provider's submission, the Verifier shall evaluate it for accuracy and prepare a report detailing the Verifier's findings.

(i) A Provider's response for each address in the test sample shall be deemed correct only if it properly identifies all jurisdictions with the authority to impose a tax on purchases made at the address, including the state and all Local Tax Jurisdictions.

(ii) The Verifier will communicate to the Provider each response the Verifier determines is incorrect, the jurisdiction that was omitted or incorrectly identified in the response, and the correct jurisdictions for the address. The Provider may challenge the Verifier's determination of incorrectness with respect to any address. In the event of a challenge, the Verifier shall contact the relevant Local Tax Jurisdiction(s) to verify the jurisdictions authorized to impose a tax on purchases made at the address. Disputes between or among Local Tax Jurisdictions regarding the location of an address shall be resolved by said jurisdictions.

(iii) After evaluating the Database's responses and resolving any challenges made by the Provider, the Verifier shall prepare a report detailing the test and the test results, and provide the report to the Department. The report such information as the Department requires, which may include, but is not limited to: the Verifier's name and contact information; the Provider's name and contact information; information sufficient to identify the Database and System tested, including any version number or similar designation; the date(s) testing was conducted; the test sample and key; and the test results.

(4)Certification Criteria. A Database must satisfy the certification criteria set forth below in order to receive and retain certification.

(a)Accuracy. A Database must produce correct and complete responses for at least 95% of the addresses included in the test sample in order to receive certification.

(b)Access for Local Tax Jurisdictions Verification. The Department shall notify Local Tax Jurisdictions when certification has been granted for a Database. Upon certification, any Provider that owns or operates a certified Database must allow each Local Tax Jurisdiction readily accessible means of determining whether the Database correctly specifies the jurisdictions with the authority to impose a tax at a given address. The Provider shall work cooperatively with the Department and Local Tax Jurisdictions to facilitate checking of individual addresses or groups of addresses against the Database.

(c)Prompt Updating of Information. A Provider shall have in place a process for regularly updating its Database and promptly correcting any errors and omissions. Updates must be made at least quarterly, and the Provider must make reasonable efforts to include in each update the correction of any error or omission about which it received notification in the ninety days preceding the update. The Provider must correct any error or omission in the Database about which it receives notification no later than 120 days following the notification. If a Local Tax Jurisdiction determines that the Database does not completely and correctly identify the jurisdictions authorized to impose a tax at a given address, the Local Tax Jurisdiction may notify the Department of the error or omission. The Department shall promptly notify the Provider of any error or omission that it or any Local Tax Jurisdiction finds with respect to the Database.

(d)Version Designation- Record Retention. The Provider of any certified Database must retain a complete copy of each iteration of the Database for no less than four years from the date that such iteration was replaced by an updated version.

(e)Requirement to Recertify Prior to Expiration. If the Department identifies numerous errors or omissions in the Database prior to the expiration of the certification, the Department may require the Provider to complete a recertification process. The recertification process shall consist of the testing and verification process outlined in subsection (3) of this rule.

(5)Denial or Revocation of Certification. The Department may deny a request for certification or revoke the certification of a Database for just cause. The Department may reassess at any time whether the Database should continue to be certified.

(a) "Just cause" for denial or revocation of certification shall include, without limitation, that:

(i) the Database is not in compliance with requirements established by § 39-26-105.3 and this rule;

(ii) the Provider's application contains a material misstatement(s);

(iii) the Database fails, during the testing process, to produce complete and correct responses for at least 95% of the addresses in the test sample;

(iv) the Provider fails to maintain the accuracy of the Database; or

(v) the Provider failed to properly and timely notify its users, pursuant to paragraph (d) of this subsection (5), of a prior revocation of certification.

(b) Any denial or revocation of certification shall be made in accordance with § 24-4-104, C.R.S.

(c) In the event of revocation, the Department shall, in accordance with subparagraph (iv) of paragraph (a) of subsection (2) of this rule, update its website to reflect the effective date of the revocation and the date on which such update was made.

(d) In the event of revocation, the Provider shall provide prompt and effective notice to users of its Database that it has been decertified. Such notification shall be made no later than five business days after the Provider receives notice of revocation from the Department.

(6)Verifiers.

(a)Designation. The Department has the authority to designate one or more persons, companies, or entities to serve as Verifiers. The designations shall be based on the sole and exclusive judgment of the Department regarding the person's, company's, or entity's expertise, experience, and performance of duties set forth herein. The Department has the authority to withdraw its designation of a Verifier at any time if, in the Department's sole and exclusive judgment, the Verifier should not be so designated.

(b)Fee of Verifier. The Verifier may charge a Provider a reasonable fee, in light of its costs and reasonable profit, for work performed in connection with this rule. In no event is the Department responsible to the Verifier or Provider for payment of such fee.

(7)Retailers Held Harmless.

(a) A retailer that properly uses and demonstrably relies upon a certified Database to determine the jurisdiction(s) to which tax is due shall be held harmless for any underpayment of tax, charge, or fee liability that results solely from an error or omission in the Database. In order to be held harmless under §§ 39-26-105.3 and 204.5, C.R.S. and this rule with respect to any particular sale, a retailer must collect, retain, and produce, upon request, documentation sufficient to demonstrate proper use of and reliance on a certified Database at the time of the sale.

(i)Proper Use. A retailer shall be held harmless only when an underpayment of tax results solely from an error or omission in a certified Database. If a retailer queries a certified Database for an address that is either incomplete or contain errors, any underpayment with respect thereto shall not be deemed the result solely of an error or omission in the Database. In such case, the retailer that improperly used the Database shall not be held harmless for any underpayment of tax, charge, or fee.

(ii)Demonstrable Reliance.

(A) If a retailer contracts with a Provider of a certified Database for a "hosted" or "on premise" solution that integrates Database utilization into the retailer's billing system, the contract in effect at the time of the sale will demonstrate the retailer's reliance on the certified Database with respect to the sale.

(B) If a retailer has no such contract for integrated Database utilization, but instead accesses the Database remotely for occasional use, the retailer must collect and retain documentation sufficient to demonstrate such use. Such documentation must reflect the physical address in question, the jurisdiction(s) identified by the Database for the address, and the date that such information was accessed. A screen print of the Database response will be sufficient to document reliance so long as the screen print reflects the address, the jurisdiction(s), and the date of use.

(b)Held Harmless. If a retailer is held harmless under §§ 39-26-105.3 or 204.5, C.R.S. and this rule, the retailer will not be held liable for any underpayment of tax, charge, or fee liability that results solely from an error or omission in a certified Database. In the event that an assessment is issued for such an underpayment, the Department shall, upon receipt of sufficient documentation to demonstrate both proper use and reliance, adjust its records to cancel such assessment.

(c)Effect of Revocation or Expiration of Certification. A taxpayer shall not be held harmless for use of a Database after the expiration or revocation of certification. Unless the taxpayer is also the Database Provider, a revocation of certification shall not affect the right of the taxpayer to be held harmless, pursuant to §§ 39-26-105.3 or 204.5, C.R.S. and this rule, for sales and use tax liabilities for transactions that occurred prior to the effective date of the revocation. However, a retailer who is also the Database Provider shall not be held harmless for sales or use taxes incurred prior to the effective date of the revocation if the Department determines that the Provider has knowingly or recklessly disregarded the requirements of this rule.

39-26-105.3

37 CR 18, September 25, 2014, effective 10/15/2014

38 CR 02, January 25, 2015, effective 2/14/2015

39 CR 10, May 25, 2016, effective 6/14/2016

40 CR 12, June 25, 2017, effective 7/15/2017

40 CR 23, December 10, 2017, effective 1/1/2018

41 CR 13, July 10, 2018, effective 7/30/2018

41 CR 14, July 25, 2018, effective 8/14/2018

42 CR 02, January 25, 2019, effective 12/18/2018, expires 4/17/2019.

42 CR 02, January 25, 2019, effective 12/18/2018

42 CR 06, March 25, 2019, effective 4/14/2019

43 CR 04, February 25, 2020, effective 3/16/2020

43 CR 17, September 10, 2020, effective 9/30/2020

44 CR 01, January 10, 2021, effective 1/30/2021

44 CR 07, April 10, 2021, effective 4/30/2021

44 CR 08, April 25, 2021, effective 5/15/2021

45 CR 04, February 25, 2022, effective 3/17/2022

45 CR 23, December 10, 2022, effective 12/30/2022

46 CR 08, April 25, 2023, effective 5/15/2023