Opinion ID: 2605783
Heading Depth: 1
Heading Rank: 5

Heading: Use of the Cash Receipts Basis Under the Sales Tax Act

Text: In the January 28, 1977 revocation letter, the Director said: Pursuant to statute, 39-26-111, C.R.S. 1973, it is my order that effective February 1, 1977, the permission to remit Colorado sales tax on the basis of cash actually received [cash basis] granted by the Department of Revenue by letter of January 31, 1964 is hereby revoked. Accordingly, February sales tax that is due and payable on March 21, 1977 must be remitted on the accrual basis. Wards contends that the Director cannot force it to remit sales tax on any basis other than the cash basis. As a retailer, Wards claims that it is only a tax collection agent for the state, and that the revocation is void in so far as it requires Wards to pay the tax before it is collected from the purchaser. Wards also argues that that portion of section 39-26-111, C.R.S.1973, which allows the Director to authorize a retailer doing business wholly or partly on a credit basis to make returns on the basis of cash actually received, applies only to the method of reporting taxes, not the payment of taxes. [5] The General Assembly has set forth a basis in the sales tax act for remittance of sales tax on the accrual basis. Section 39-26-105(1)(a), C.R.S.1973, makes a licensed retailer the state's agent for collection and remittance of sales tax due from the purchaser. Section 39-26-105(1)(a), C.R.S. 1973, also provides that the tax is incurred upon the sales transaction and must be remitted to the state by the 20th day of the month next following the sale. Section 39-26-102(5), C.R.S.1973, defines gross taxable sales as the total amount received in money, credits, or property, with credit provided against taxable sales on returned goods or worthless accounts. Section 39-26-102(5), C.R.S.1973, also provides for remittance of sales tax to the state on the cash basis, but only on accounts whose payments are extended over a period longer than sixty days from the date of the sale. Section 39-26-111, C.R.S.1973, provides: Credit sales. In case of a sale upon credit, or a contract for sale wherein it is provided that the price shall be paid in installments and title does not pass until a future date, or a chattel mortgage or a conditional sale, there shall be paid upon each payment, upon the account of purchase price, that portion of the total tax which the amount paid bears in the total purchase price. The executive director of the department of revenue may authorize a retailer doing business, wholly or partly on a credit basis, to make returns on the basis of cash actually received. Thereafter the retailer shall make return and pay taxes on that basis until further order of the executive director.... (Emphasis added.) [6] The first sentence of the statute mandates that a retailer pay the sales tax portion of each individual payment received on a credit sale in the same proportion that the amount paid bears to the total purchase price. The second sentence of the statute provides that the Director may authorize a retailer to make returns on the basis of cash actually received. Wards argues that there is a distinction between reporting and paying sales tax, and that because the first sentence of the statute states that sales tax shall be paid on a cash basis, the Director is limited in his authority to require payment of sales tax to the cash basis. We disagree. The third sentence of the statute specifically states that once a retailer has secured permission from the Director to report taxes on a cash basis, he shall thereafter make return and pay taxes on that basis until further order of the Director. (Emphasis added.) Thus, the statute provides that the Director has the authority to order payment of taxes on a basis other than the cash basis. The record supports the district court's finding that the method used by [Wards] in computing [its sales tax] was not authorized by statute.... Essentially, Wards computes its sales tax liability by looking to the aggregate of its receivables and their relationship to gross taxable sales. This accounting method is based on assumptions and estimates unrelated to actual payments made by a customer on a particular account. An estimate of the amount of taxes due does not satisfy the statutory requirement that a retailer keep suitable records of all sales and such other books or accounts as may be necessary to determine the amount of tax which Wards has the responsibility to collect. Section 39-26-116, C.R.S.1973. Wards' procedure also failed to meet the requirement that a retailer must make payment of sales tax within the month when the cash is actually received. Section 39-26-111, C.R.S.1973. [7] Cf. Frontier Airlines v. Department of Revenue, 194 Colo. 230, 571 P.2d 1088 (1977). (Excise tax on liquor was paid by an interstate airline on an estimated basis of quantity of sales occurring in Colorado and was justified because no specific means of determining actual quantity of liquor sales in Colorado existed.) We conclude that the Director has the authority to compel Wards to remit sales tax on credit sales on the accrual basis under section 39-26-111, C.R.S.1973, and the basis for payment of sales tax set forth in the Sales Tax Act. See generally, State Tax Commission of Arizona v. Montgomery Ward & Co., Inc., 113 Ariz. 18, 545 P.2d 942 (1976).