Your Guide to Sales Tax in the Mountain Region

Sales tax in the Mountain Region can be as rugged as the terrain itself, with a unique blend of state-level regulations, local mandates, and emerging digital tax policies shaping how businesses operate. Whether you’re a seasoned business owner in Denver, a startup in Salt Lake City, or an online retailer reaching customers across the Mountain Region, staying updated on the latest sales tax regulations is essential for your success.??

Let’s explore the key developments shaping sales tax in the Mountain Region, empowering you with the knowledge to navigate these changes confidently and efficiently.?

Home Rule Authorities?

In the Mountain Region of the U.S., home rule authorities present unique challenges for businesses trying to stay sales tax compliant. Unlike states with uniform tax laws across all jurisdictions, home rule authorities allow cities or counties to set their own sales tax regulations, often with variations in tax rates, exemptions, and filing requirements. For businesses operating across multiple locations in states like Colorado, Idaho and even Montana, understanding the distinct tax obligations in each locality is key to avoiding compliance issues.?

Colorado stands out in the Mountain Region with the highest number of home rule jurisdictions—nearly 70 cities have individual sales tax requirements. In Colorado, these cities are allowed to impose, administer, and enforce their own sales taxes independently of the state system. For instance, Denver, Boulder, and Colorado Springs each have their own tax rates and regulations, which can vary significantly from state standards. Businesses operating in Colorado must be diligent in understanding each jurisdiction’s specific rules, particularly for common transactions like local deliveries or online sales. Often, this means registering in each home rule city where taxable sales occur, filing separate tax returns, and ensuring accurate tax rates on invoices.?

While Montana does not impose a statewide sales tax, it does allow certain localities to implement local-option sales taxes on items like lodging or prepared food, which have a focus to impact tourism-focused businesses but locals do like to eat out on occasion right?! For companies that frequently deal in travel or accommodation, these localized taxes can be an added layer of complexity. Some Idaho resort cities have a local sales tax in addition to the state sales tax. These local sales taxes are sometimes also referred to as local “option” taxes because the taxes are decided by the voters in the community affected.??

Resort cities have a choice in what’s taxed and can include everything that’s subject to the state sales tax. Some, but not all, choose to limit the local sales tax to lodging, alcohol by the drink, and restaurant food.?

Montana offers a more simplified approach. The state has no state-level sales tax, providing a tax-friendly environment for digital goods providers, though local-option resort taxes may apply to select types of businesses including??

• Hotels, motels, and other lodging or camping facilities;?

• Restaurants, fast food stores, and other food service establishments;?

• Taverns, bars, night clubs, lounges, or other public establishments that serve alcohol; and?

• Destination ski resorts or other destination recreational facilities?

The resort tax also applies to luxuries sold in the resort area.?

Tips for Navigating Home Rule Authorities?

1. Stay Updated on Local Regulations: Given that home rule cities can adjust their tax rates and policies independently, it’s important to regularly check with city tax departments or use updated tax software that incorporates local rate changes.?

1. Utilize Tax Automation Tools: For businesses managing sales across multiple home rule jurisdictions, tax automation software can significantly reduce the risk of errors. Platforms that support home rule complexities can handle varied rates and requirements across multiple cities.?

1. Register Appropriately: Make sure to register with each applicable city where home rule taxes are enforced. In some states, failing to register in the correct jurisdiction can lead to penalties or interest on unpaid taxes.?
2. States Dropping the 200 Transactions Threshold for Economic Nexus??

In response to discussions during the Senate Finance Hearing on the impact of Wayfair on small businesses in 2022, states are evaluating the elimination of the 200-transaction count part of their economic nexus threshold.?This reduces the burden on small businesses and helps the state focus on businesses generating enough revenue in the state to support compliance costs.????

North Dakota and Colorado dropped their transaction count thresholds years ago, South Dakota followed suit in 2023, and most recently Wyoming eliminated their 200 transactions as part of the state’s economic nexus threshold effective July 1, 2024. Remote sellers will now only be required to register and collect the state’s 4% sales tax in the state if they surpass the $100,000 gross sales threshold. These changes follow the trend of states removing their 200-transaction threshold.? Other states around the country that have removed the transaction count from their economic nexus thresholds include Iowa, Wisconsin, Washington, and more. This is good news for smaller remote sellers making sales into these states whose sales don’t exceed $100,000 in a calendar year but whose transaction count exceeds 200. Stay up to date on the developments by using our?Economic Nexus State by State Guide.??

This trend follows the Senate Finance Committee Testimony given by Diane Yetter, our founder, in June 2022.? In her testimony, she explained the compliance burden the 200-transaction threshold puts on the smallest of sellers.? It was based on this testimony in part that led the?Streamlined Sales Tax Governing Board?to encourage all the member states that still use the 200-transaction threshold to remove it.?We hope all the other states, not just the SST member states, follow suit, and eliminate this burden.??

Taxation of Software, SaaS, and other Digital Goods?

Tax laws on these services vary widely, particularly for Software as a Service (SaaS), streaming media, and downloadable software. Each state’s unique stance on digital product taxation can impact businesses differently depending on where they operate or where they have customers.?

Colorado applies sales tax to certain digital products, though the specifics can depend on the jurisdiction. While the state generally taxes software, how that software is accessed—downloaded vs. cloud-based—can influence its taxability. Some Colorado home rule cities, like Denver, may impose their own sales tax on SaaS or digital downloads, meaning businesses need to be vigilant about varying local tax rules when providing digital services.?

Idaho and Utah take a nuanced approach, focusing on the distinction between tangible software and intangible digital products. Idaho generally considers electronically downloaded software as taxable, while SaaS remains non-taxable. In Utah, however, both downloadable and SaaS products are generally exempt unless delivered as a tangible, physical medium. Businesses selling across state lines should be aware of these classifications to avoid charging incorrect tax amounts.?

Nebraska, North Dakota, and South Dakota each have unique rules for digital goods. In Nebraska, digital products, including SaaS, are taxable if delivered electronically, whereas North Dakota exempts most digital goods, including software, if accessed solely online without a physical copy. South Dakota, a state that has seen changes to its digital tax policies, includes SaaS in its taxable category, marking a trend toward increased digital goods taxation. Businesses should keep an eye on legislative developments in these states, as evolving digital tax laws can affect their obligations. Wyoming does not impose sales tax on SaaS, but does tax digital products when transferred to the purchaser for permanent use.?

Tips for Navigating Digital Goods Taxation?

1. Clarify Product Classification: Identify how each product—whether software, SaaS, or digital download—fits within each state’s definitions to determine taxability accurately.?
2. Track Legislative Changes: Digital goods taxation is a rapidly evolving area. Regularly review each state’s tax code or subscribe to tax law updates to stay current.?
3. Leverage Automation Tools: For businesses operating in multiple states, tax software that includes support for digital products can streamline compliance, helping ensure proper tax rates are applied based on each state’s rules.?

Don’t let new regulations catch you off guard! Dive deeper with our upcoming webinar, Sales Tax in the Mountain Region: Latest Changes and Insights, taught by Trisha Davidson, CMI and Amanda Cusack . Sign up now to get the inside scoop on what’s happening in the Mountain states including significant court cases, crucial sales tax updates, and more. Make sure your business stays compliant.?