If a digital marketplace collects and remits Colorado sales tax on its third-party sellers' sales as a 'jointly responsible' retailer, does that relieve the third-party sellers of liability — and are both relieved when a buyer presents an exemption certificate naming the marketplace as seller?

Plain-English summary

A company runs an internet marketplace where customers buy and download third-party digital products — software, games, apps, movies, books — supplied by independent software vendors (ISVs). The company hosts and delivers the products, processes payment through its own systems, takes a service fee, and remits the rest to each ISV. The license is directly between the ISV and the customer; the company is the agent selling the ISVs' goods. The company already calculates and remits the sales tax, and asked two questions about who's on the hook. (This predates Colorado's later statutory marketplace-facilitator regime; it analyzes the issue under the "jointly responsible retailer" agency rule.)

Question 1 — does the marketplace's collection relieve the third-party sellers? Generally yes, on the money. Colorado retailers must collect and remit tax, and § 39-26-103(9)(e) lets the Department treat a salesman/representative/agent as "jointly responsible" with the principal for collecting and paying the tax. The company agreed to collect as a jointly responsible retailer. "Jointly responsible" isn't defined by statute, so the Department used the ordinary meaning: under contract law and Colorado's UCC, payment in full of a debt by one joint-obligor discharges the other. Applied here, full payment of the correct amount and type of tax by one jointly responsible retailer discharges the payment obligation of the other (the ISV). Important limit: discharging the monetary liability does not limit the Department's statutory authority to administer and collect from either jointly responsible retailer if a deficiency arises in the future. So a later shortfall can still be pursued against either party.

Question 2 — exemption certificates. A retailer shouldn't collect tax from a buyer who presents a valid sales-tax license or exemption certificate, but must use due diligence and still collect if there's reasonable doubt the exemption applies. The Department confirmed the marketplace may accept exemption certificates and sales-tax licenses to the same extent and in the same manner as the ISV could. And if the company exercises reasonable diligence in accepting them, both the company and the ISV are relieved of liability if the Department later determines the exemption didn't actually apply (see FYI Sales 1).

What this means for you

Marketplace and platform operators

If you collect Colorado tax on your sellers' transactions as a jointly responsible retailer, paying the correct tax in full clears your sellers' payment obligation for that tax — you don't both pay twice. But "jointly responsible" cuts both ways: the Department can still pursue either of you for a later deficiency, so accuracy matters. You can also accept exemption certificates on your sellers' behalf, and reasonable diligence in doing so shields both you and the seller if an exemption is later disallowed.

Third-party sellers on a marketplace

When your marketplace remits the correct tax as a jointly responsible retailer, your payment obligation for that tax is discharged. That's not a blanket release, though — a future deficiency can land on you too. Keep documentation of what was collected and remitted.

Accountants advising platforms

This is agency-based joint liability under § 39-26-103(9)(e), not the later statutory marketplace-facilitator rules — note the era. Two practical points: (1) full, correct payment by one jointly responsible retailer discharges the other's payment obligation but not the Department's collection authority on a deficiency; (2) diligent acceptance of exemption certificates relieves both parties. Watch the home-rule-city caveat and confirm current marketplace-facilitator law for present-day transactions.

Common questions

Q: If a marketplace collects and remits Colorado tax, are the third-party sellers off the hook?
A: For that tax, yes — full payment of the correct tax by one jointly responsible retailer discharges the other's payment obligation. But the Department can still pursue either party for a future deficiency.

Q: What does "jointly responsible" mean here?
A: Under § 39-26-103(9)(e), the Department may treat an agent (like a marketplace selling sellers' goods) as jointly responsible with the principal for collecting and remitting tax. Joint-obligor rules then mean payment by one discharges the other's payment obligation.

Q: Can the marketplace accept exemption certificates for its sellers?
A: Yes — to the same extent the seller could. If the marketplace uses reasonable diligence in accepting a valid-looking certificate or license, both it and the seller are relieved of liability if the exemption is later disallowed.

Q: Does this mean nobody can ever be assessed again?
A: No. Discharging the monetary liability doesn't limit the Department's authority to collect from either jointly responsible retailer if a deficiency is found later.

Q: Can I rely on this letter?
A: Only as general guidance. A General Information Letter is not binding on the Department and makes no specific determination — and the marketplace-facilitator rules have evolved since. For a binding answer, request a private letter ruling and check current law.

Citations and references

Statutes and rules:
- § 39-26-102(8), C.R.S. (definition of "retailer," including remote sellers)
- § 39-26-103(9)(e), C.R.S. (Department may treat an agent as a jointly responsible retailer)
- Colorado UCC §§ 4-3-116, 4-3-605; Restatement (Second) of Contracts §§ 289, 294 (joint-obligor discharge)
- FYI Sales 1 ("How to document sales to retailers and tax-exempt organizations")

Source

• Landing page: Colorado Sales & Use Tax Letter Rulings
• Original PDF: GIL-16-020.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

GIL-16-020
October 4, 2016
XXXXXXXXXXXXXXXX
Attn: XXXXXXXXXXXXX
XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX
Re: Third-Party Liability
Dear XXXXXXXXXXXX,
You submitted on behalf of XXXXXXXXXXXXX (“Company”) a request for guidance regarding
Company’s sales tax obligation for purchases from Company’s Internet Marketplace.
The Colorado Department of Revenue (“Department”) issues general information letters and
private letter rulings. A general information letter provides a general overview of the relevant tax
issues, but is not binding on the Department. A private letter ruling provides a specific
determination for a specific set of facts, is binding on the Department but not on the taxpayer,
and requires payment of a fee. For more information about general information letters and
private letter rulings, please see Department Rule 1 CCR 201-1, 24-35-103.5 at
www.colorado.gov/pacific/tax/letter-rulings
The Department treats this request as a general information letter. It is important to remember that
general information letters, such as this one, are general discussions of tax law and are not binding
on the Department. If Company would like the Department to issue a private letter ruling on the issue
raised here, Company can submit a request and pay the fee in compliance with Department Rule 1
CCR 201-1, 24-35-103.5.
Issues
1. If Company collects and remits sales tax on third-party sales, will the third-party retailer
be relieved of the liability to collect tax?
2. Will Company and third-parties be relieved from collecting sales tax if the buyer presents
to Company an exemption certificate that lists Company as the seller?
Background
Company develops and markets a wide range of software, services, and digital products. In
connection with these products, Company operates a marketplace for third-party software,

games, apps, movies, books, and other digitized products available for customers to purchase
and download electronically using their personal computers, tablets, game consoles, phones,
and other devices. Although the marketplaces are separately branded (i.e.,
XXXXXXXXXXXXXXXXXXXXX, etc.) Company refers to them collectively as the “Marketplace.”
Customers gain access to the Marketplace using their computing devices. Customers may
search a catalog that identifies the title and the Independent Software Vendor (ISV) of the
digitized content available for purchase (e.g., XXXXXXXXXXXXXXX). To initiate a purchase,
the customer selects a title to add to the shopping basket. The customer checks out, using a
credit card or other form of payment. Company processes the payment using its own payment
infrastructure, and provisions the product from one of its data centers. The sale may include
titles from more than one ISV. Company is not required to obtain approval from the ISV prior to
the sale.
ISVs enter into service agreements with Company whereby Company agrees to host and
electronically deliver digitized products to customers on each ISV’s behalf, process the
customer’s payment, and remit the proceeds to each ISV less Company’s service fee.
Company is entitled to withhold the service fee, equal to a percentage of the product’s sale
price, from the sales proceeds. Company also calculates the appropriate amount of sales tax
due on the transaction and remits the sales tax directly to the Department.
Company does not sublicense the digitized content to the customer. The license agreement is
directly between the ISV and customer. The ISV, as the licensor, determines the price at which
the software or other products are sold to the end customers.
Discussion
A. Discharge of co-retailer’s liability
Retailers must collect, report, and remit sales tax on taxable sales to buyers. A “retailer” is “a
person doing business in Colorado, including a remote seller, if the retailer is known in the trade
and public as such, and is selling to the user or consumer...”1 In some cases, the Department
can require an agent of the retailer to collect, report, and remit the applicable sales tax.
Specifically, § 39-26-103(9)(e), C.R.S. states,
In addition, when in the opinion of the executive director it is necessary for the efficient
administration of this section to treat any salesman, representative, peddler, or canvasser
as the agent of the vendor, distributor, supervisor, or employer under whom he operates
or from whom he obtains tangible personal property sold by him or for whom he solicits
business, the director may, in his discretion, treat such agent as the vendor jointly
responsible with his principal, distributor, supervisor, or employer for the collection and
payment over of the tax.
Company represents that it is an agent of ISVs for the purpose of selling ISVs’ goods.
Company further represents that, if it collects and remits sales tax on sales subject to tax in
Colorado, it agrees to do so as a “jointly responsible” retailer. Company asks the Department to
confirm that, if such collection and payment is made by Company, the Department will not seek
to collect tax from the ISVs.

1 § 39-26-102(8), C.R.S.

“Jointly responsible” is not statutorily defined. In the absence of a statutory definition, the
Department applies the common and ordinary meaning to such terms. Company correctly
asserts that, under the law of contracts and Colorado’s uniform commercial code, payment of a
debt in full by one joint-obligor discharges the other joint-obligor from liability for such debt.2 In
the context of § 103(9)(e), C.R.S., payment in full of the correct amount and type of tax debt by
one jointly responsible retailer discharges the payment obligation of the other jointly responsible
retailer.
However, the discharge of the monetary liability does not discharge or otherwise limit the
Department’s statutory authority to administer and collect taxes from either jointly responsible
retailer if a deficiency occurs in the future.
B. Exemption certificates and sales tax licenses for exempt sales
A retailer should not collect sales tax or retailer’s use tax from a buyer who presents a valid
sales tax license or exemption certificate issued by the Department. The retailer must exercise
due diligence when accepting a sales tax license or exemption certificate, and must collect sales
tax if there is reasonable doubt whether the exemption applies.3 Company, as a jointly
responsible retailer, may accept exemption certificates and sales tax licenses for purpose of
exempting a sale from sales or retailer’s use tax to the same extent and in the same manner as
an ISV may do so. If Company exercises reasonable diligence when accepting the exemption
certificate or sales tax license, then both the Company and ISV are relieved of liability for
collecting tax if the Department later determines that the exemption did not apply.
Miscellaneous
This letter represents the good faith opinion of Department personnel who are knowledgeable
on state taxes issues. However, the Department does not make a specific determination here
on any of the issues raised and the Department is not bound by this general information letter.
The Department administers state and state-administered local sales and use taxes. This letter
does not address sales and use taxes administered by home-rule cities and home-rule counties.
You may wish to consult with local governments which administer their own sales or use taxes
about the applicability of those taxes. Visit our web site at www.colorado.gov/tax for more
information about state and local sales taxes.
Enclosed is a redacted version of this letter. Pursuant to statute and regulation, this redacted
letter will be made public within 60 days of the date of this letter. Please let me know in writing
within that 60 day period whether you have any suggestions or concerns about this redacted
letter.
Sincerely,

Office of Tax Policy
Colorado Department of Revenue

2 See, e.g., Restatement (Second) of Contracts, §§289, 294; §§4-3-116 and 4-3-605, C.R.S. (Colorado UCC).
3 See, FYI Sales 1 “How to document sales to retailers and tax-exempt organizations.”