Forced Authorizations and Colorado Ecommerce Sales Tax

Starting early in 2019, many businesses in the US will lose the ability to force transactions. A forced sales happens when a merchant uses an existing authorization number to push a transaction into the settlement system. While many businesses will never have to do this, it is very common for others. Legitimate reasons for forcing transactions include when sales are processed offline such as a mobile terminal without access to a cellular network, or merchants who still manually imprint cards.

The problem with forcing transactions, is that there is no ability to verify the authorization number before processing the sale. So this is an extremely common method that criminals use to defraud cardholders and processors. They just enter a card number and some random digits for an authorization number and process the card. This has a variety of consequences, but generally ends in the card holder or card issuer requesting a chargeback.

About a year ago, card associations decided they were fed up with the amount of fraud being committed using forced sales so they passed a new regulation requiring processors to disable the ability to force sales for all businesses and only allow it on a case by case basis. This regulation goes into effect in January and will remove the ability to force transactions for most merchants. Some processors are taking it a step further and making it very difficult to force sales even for businesses who have a legitimate need to do so.

So, if you are a business who routinely or occasionally needs to force transactions, be aware that this function is likely to disappear from your terminal, POS system, or payment gateway in January. If you have a legitimate need for it, you will likely be granted access to the function, but it may be literally on a case by case basis.

Colorado’s Online Sales Tax Mess Disaster

While collecting sales tax is a complicated process for ecommerce businesses, Colorado just made it a million times worse by requiring online retailers, both instate and out of state, to collect and remit taxes for sales made in the state of Colorado. Unlike most states who have attempted to make collecting and remitting sales tax easier, Colorado has an extremely complex sales taxation mechanism with dozens of taxation districts and even within these districts the total taxes can be different because Colorado collects taxes based on numerous factors. And to make it even worse, Colorado has a home rule law, where different cities are allowed to control the collection process entirely.

Effective Dec. 1, 2018, the Colorado Department of Revenue will adopt new sales tax rules. The new rules state that sales tax must be collected and remitted based on the jurisdiction’s tax rate at the point of delivery for the taxable good when taxable goods are delivered to a Colorado address outside the retailer’s jurisdiction.  This includes any applicable state-administered local and special district taxes. For example, if a retailer delivers taxable goods to a customer’s address, sales tax must now be collected at the rate effective for the customer’s address, not the taxes that are in common between the customer’s address and the seller’s location. For a complete list of location/jurisdiction codes for sales tax filing go here. 

So, an out of state online retailer will have to figure out the specific taxation rate depending on the shipping address of the customer at the time of checkout. And, then will have to figure out how to remit those taxes to the state and/or city themself. In other states with consolidated sales tax rates, this isn’t such a problem, but in states like Colorado with complex sales taxation, it is a nightmare for businesses trying to comply with the state’s policies. This is a clear example of putting the cart before the horse and is going to cause serious problems for the few small remaining online retailers who have so far managed to not get put out of business by Amazon.