Colorado 2025 Sales Tax Guide

Navigating sales tax can be daunting for any small business owner, especially in a state like Colorado with its unique rules and local jurisdictions. This ultimate guide breaks down everything startups, SaaS companies, and eCommerce businesses need to know about Colorado sales tax. We’ll cover how to register for a sales tax license, when and how to collect tax, filing and payment basics, common mistakes to avoid, and answer frequently asked questions – all in clear, friendly language. Let’s dive in!

How to Register for Colorado Sales Tax

Before you can collect any sales tax, your business needs to register for a Colorado sales tax license (sometimes called a seller’s permit). Here’s how to get started and what to expect during registration.

Step-by-Step: Registering for a Sales Tax License in Colorado

1. Determine if you need a license: If your business will be selling, leasing, or renting tangible products in Colorado (or taxable services), you must obtain a sales tax license. This applies to in-state businesses and remote sellers who have reached economic nexus in Colorado (more on nexus later).

2. Gather your business info: Be ready to provide details like your business name and address, ownership info, and Federal Employer Identification Number (EIN) if you have one. (While not always mandatory for sole proprietors, having an EIN is strongly recommended and required for most business entities.)

3. Register with the state: The fastest way is online. Colorado’s MyBizColorado portal or the Revenue Online system will walk you through the process. You can also register by mail using Form CR 0100 (the Colorado Business Registration form), but online registration is quicker. In fact, if you apply online, you’ll receive your sales tax account number immediately; by mail it can take 2–3 weeks to get your license .

4. Pay the license fee (if applicable): Colorado charges a small fee for a sales tax license. For Colorado-based businesses, a two-year sales tax license costs $16, and there’s a one-time $50 deposit that the state holds as security. Don’t worry – that $50 deposit will be refunded after you’ve remitted $50 in state sales tax. If you’re an out-of-state (remote) seller with no physical presence in Colorado, the state issues a retailer’s use tax license instead, which is free and requires no deposit.

5. Obtain any local licenses if needed: Some Colorado cities (called “home-rule” cities) require their own local sales tax license separate from the state license. If you will be doing business in a home-rule city (for example, Denver, Colorado Springs, Boulder, etc.), check with that city’s tax authority about registration. This usually applies if you have a physical store or employees in that city or deliver goods there regularly.

6. Receive your license and account number: Once registered, you’ll get a Colorado sales tax license number (often referred to as your account number or sales tax ID). If done online, you can often print a temporary license. A physical license certificate should arrive by mail. Be sure to renew your license every two years – all Colorado sales tax licenses expire on December 31 of every odd-numbered year and must be renewed for a $16 fee .

How Much Does It Cost to Register?

Registering for a Colorado sales tax license is inexpensive. An in-state business pays a $16 license fee for a two-year period, plus a $50 refundable deposit. The deposit is returned to you automatically once you’ve collected and paid $50 in state sales tax to Colorado. Essentially, after your business has generated at least $50 in sales tax for the state, they send your $50 deposit back (usually as a credit or refund).

Out-of-state sellers

If you’re based outside Colorado and only need a Colorado retailer’s use tax license (because you have sales tax nexus in CO), there is no fee or deposit for that license. Colorado waives the charge for remote sellers.

Wholesale only businesses

Even if you only sell wholesale (meaning all your sales are to other businesses for resale), you are still required to get a sales tax license. The good news is wholesale-only businesses may not be required to pay the $50 deposit (since you won’t be collecting tax from customers).

License renewal

Renewals every two years cost $16 for each business location. So if you have multiple stores or locations, each one needs its own license and renewal fee.

Do I Need a Federal Tax ID (EIN)?

In most cases, yes. When registering for Colorado sales tax, you’ll be asked for an identifying number. Businesses that are corporations, LLCs, or partnerships, or any business with employees, should have a Federal Employer Identification Number (EIN) from the IRS. This EIN is used on your Colorado tax registration. Sole proprietors without employees can use their Social Security Number if they don’t have an EIN, but it’s still a good idea to obtain an EIN to keep your personal SSN separate from your business. Getting an EIN is free on the IRS website and can usually be done in a few minutes online. It’s not a requirement for all small businesses, but it makes registration and tax filings easier (and is required if your business is anything other than a one-person sole prop).

Tip: If you use Colorado’s MyBizColorado one-stop registration portal, you can often input your EIN and it will simultaneously handle registration with other state agencies. If you haven’t gotten an EIN yet, you might want to do that first before completing the state tax license application.

What Other Colorado Agencies Might I Need to Register With?

Starting a business in Colorado might involve a few other registrations beyond just the Department of Revenue (which issues the sales tax license). Here are other agencies/new business requirements to consider:

Colorado Secretary of State

Every business entity (LLC, corporation, etc.) operating in Colorado must be registered with the Secretary of State’s office. This is essentially your business’s official registration (separate from tax). If you’re forming a new business, you’ll file organizational documents and pay a registration fee here. Even sole proprietors often register a trade name.

Colorado Department of Revenue (DOR)

In addition to the sales tax license, if you have employees you’ll need to register for a wage withholding account (for state income tax withholding from paychecks). The same CR 0100 form or MyBizColorado can handle setting up a withholding account and even a unemployment insurance account with the Dept. of Labor. In short, MyBizColorado is a useful hub that coordinates registration with multiple agencies – it connects the Secretary of State, DOR, Department of Labor & Employment, and others. Take advantage of it to knock out several registrations in one go.

Colorado Department of Labor and Employment

If you’ll have employees, register for unemployment insurance. This is often done via MyBizColorado as just mentioned.

Department of Regulatory Agencies (DORA)

Certain businesses/professions in Colorado require special licenses (for example, electricians, real estate brokers, barbers, etc.). Check if your industry is regulated by DORA. Most typical retail or SaaS businesses won’t need a DORA license, but if you provide services that require a professional license, be sure to comply with those requirements as well.

Local city or county licenses 

Many cities or counties require a general business license to operate (separate from sales tax). Additionally, home-rule cities in Colorado (like Denver, Aurora, Colorado Springs, etc.) administer their own local sales taxes. If you have a storefront or regularly deliver goods into a home-rule city, you might need to register with that city’s tax office for a local sales tax license. For example, a business in Denver needs a Denver sales tax license in addition to the state license. Always check the local requirements for any city where you have a physical presence or significant sales.

Other permits

Depending on your business, you might need other permits – e.g. health department permits for restaurants, tobacco/alcohol licenses for selling those products, etc. These are beyond the scope of sales tax but worth mentioning so you can ensure full compliance.

For most small businesses, getting set up will involve (1) registering your business entity with the state, (2) getting your sales tax license from DOR (plus any withholding/unemployment accounts if you have staff), and (3) possibly obtaining local city licenses if required. Colorado’s MyBizColorado website is a convenient starting point to handle many of these tasks in one streamlined process.

Understanding Colorado Sales Tax Collection Rules

Once you’re licensed, the next step is knowing when you need to charge sales tax and at what rate. Colorado’s sales tax rules include whether it’s origin or destination based, which transactions are taxable, and what exemptions exist. Understanding these rules will ensure you collect the right amount of tax from your customers (and not overcharge or undercharge them).

Is Colorado an Origin-Based or Destination-Based Sales Tax State?

Colorado is a destination-based sales tax state. This means that the sales tax rate is determined by the location where the product is delivered or the service is provided, not where the seller is located. In practical terms, if you’re a Colorado business shipping a product to a customer in another part of Colorado, you charge the sales tax rate applicable at the customer’s address (the “ship-to” location).

Example: You operate from Boulder, CO, but you ship an item to a customer in Colorado Springs. You should collect the sales tax rate for Colorado Springs (state + Colorado Springs city tax + any applicable county/special district taxes) on that sale, rather than the Boulder rate.

Why does this matter?

Colorado has a base state tax rate of 2.9%, but local jurisdictions add their own sales taxes on top. Because it’s destination-based, you need to account for the specific combination of state, county, city, and special district taxes where your customer is. This can get tricky since Colorado has many local tax jurisdictions.

A note on Colorado’s local tax complexity

Colorado is somewhat infamous for its complex sales tax structure due to home-rule cities. The state-administered sales tax (2.9% state tax plus many county, city, and special district taxes) must be collected and remitted to the Colorado DOR. However, home-rule cities administer their own sales tax separately. A destination-based approach means you may need to collect home-rule city tax if you are doing business in that city (often requiring a separate registration in that city). Always verify if a city is home-rule (self-collecting) or state-collected. If it’s state-collected, you’ll remit that city’s tax through your state return. If it’s home-rule, you might need to remit directly to the city.

All Colorado counties that have a sales tax are state-collected except Denver and Broomfield counties (DRP 0099). Many major cities like Denver, Aurora, Colorado Springs, etc., are home-rule and self-collected. So destination-based sourcing in Colorado can require juggling both state and local reporting.

Charge sales tax based on your customer’s location in Colorado, not your business’s location. This applies to in-state businesses and has also been required for remote sellers since Colorado’s tax rules were updated post-Wayfair. As of 2019–2022, Colorado phased in destination sourcing for all businesses (small in-state sellers were given a grace period, but that has expired), so now everyone should use destination-based collection.

What Transactions Are Taxable in Colorado?

Colorado, like most states, primarily taxes sales of tangible personal property. In general, if you sell a physical product, it’s taxable unless an exemption applies. However, Colorado also taxes certain specific services and other transactions. Here’s a breakdown:

Tangible goods

Retail sales of physical products are taxable. This includes items like clothing, electronics, furniture, appliances, etc. If you can touch it and it’s not specifically exempt, assume sales tax applies. There are a few product categories that are exempt (we’ll cover exemptions in a moment), but the default is taxable for goods. Even products sold online (downloaded or delivered electronically) can be taxable – for example, Colorado considers many digital goods taxable as tangible property (such as downloaded movies, e-books, music). One notable exception is software delivered electronically or via the cloud, which Colorado often treats as a non-taxable service (see the SaaS section below).

Services

Most pure services are not subject to Colorado sales tax (DRP 0099). If you’re a consultant, designer, software developer (selling custom services), or provide labor with no tangible product, you typically do not charge sales tax on your service fees. However, there are important exceptions where services are taxed by law in Colorado:

Lodging and accommodations

The furnishing of rooms and accommodations (hotels, motels, short-term rentals) is taxable as it is considered a taxable servic. If you run an Airbnb or hotel, you charge sales (or lodging) tax on room rentals.

Catering and prepared food service

 Selling prepared food (as a restaurant or caterer) is taxable. Colorado taxes restaurant meals and catering services just like the sale of the food product.

Utility services

Charges for utilities such as gas and electricity (for non-residential use) and steam are taxable services in Colorado. Residential home energy use is exempt from state tax but could be taxed by local jurisdictions by choice.

Telecommunication services 

Telephone and telegraph (and by extension, likely modern telecom/internet services) are listed as taxable services.

Some entertainment/amusement services

Entry fees for events, amusement park tickets, etc., can be taxable as they are charges for the right to enjoy a facility or service. Colorado statutes include “amusement, entertainment, and recreation services” as taxable in some contexts.

Leased property

The lease or rental of tangible personal property is taxed similarly to a sale. So if you rent equipment to customers, those rental charges are subject to sales tax just like a sale would be .

Other than these categories, most general services (legal fees, accounting services, consulting, etc.) are not taxed by Colorado. Always double-check if you’re in a niche field, but the key point is Colorado’s sales tax primarily targets goods, not services, except for specific ones enumerated in the law.

Shipping and delivery charges

In Colorado, shipping charges are generally not taxable if they are stated separately from the product price and the shipment occurs after the sale. If you charge your customer separately for shipping or delivery and give them the option to arrange pickup instead, that shipping fee can be treated as non-taxable. However, if you bundle “shipping & handling” into the product price or don’t separately state it, the entire amount (including the implicit shipping cost) becomes taxable. To be safe, always list shipping or delivery fees as a separate line item on the invoice. (Note: If you deliver goods in your own truck and charge for delivery, those charges can be non-taxable under the same conditions – separately stated and optional to the customer.)

Special cases

Colorado has some quirks for specific items:

• Clothing is taxable (Colorado does not have a general clothing exemption, unlike some states). Even though clothing is a necessity, it’s taxed at the full rate.

• Groceries (food for home consumption) are exempt from state sales tax (we’ll detail this under exemptions). So selling grocery-type food items is generally not taxable at the state level (though some local taxes might still apply).

• Motor vehicles: Auto sales are taxable, but they are often handled with a mix of sales/use tax because you typically pay sales tax when registering a car. If you’re an auto dealer, you already know the DOR has special forms and processes for collecting tax on vehicle sales.

If you’re selling tangible products in Colorado, assume they are taxable unless an exemption clearly applies. Services are mostly exempt except for those specifically listed as taxable (lodging, catering, utilities, telecom, etc.). And always pay attention to shipping – separate it out to keep it non-taxable for your customers.

Is SaaS Taxed in Colorado?

For many startups and tech companies, this is a big question.

The answer: Software-as-a-Service (SaaS) is not subject to Colorado state sales tax in most cases.

Colorado treats SaaS as a nontangible service rather than the sale of tangible personal property. This means if you sell access to cloud-based software or subscription software services, the state of Colorado does not require you to charge the 2.9% state sales tax on those subscription fees.

However, there’s a catch – those pesky home-rule cities again! Some local jurisdictions in Colorado do tax SaaS even though the state doesn’t. For example, the City of Denver imposes its own local sales tax on software and SaaS if certain criteria are met Denver essentially considers the purchase of software, including cloud-hosted software, as a taxable transaction.

Other home-rule cities such as Colorado Springs and Boulder have similar rules taxing SaaS or digital software licenses. The local tax rate would apply to the portion of the sale in that jurisdiction. For instance, Denver’s local tax rate (around 4.81% previously, now 5.15% in 2025) could be charged on SaaS sales to Denver customers even though the state’s 2.9% is not.

If you are a SaaS company or sell software delivered online in Colorado, you do not charge the 2.9% Colorado state sales tax on those subscription fees (since it’s not tangible property). But you may need to collect local sales tax in certain Colorado cities that tax software. Always check the tax rules for any home-rule city where you have customers. This typically means if you have a customer located in Denver and you’re billing them for SaaS, you should charge Denver’s sales tax on that sale (because Denver says SaaS is taxable under their code). On the other hand, if your customer is in a city/county that follows the state’s tax base (state-collected jurisdictions), then no tax would apply to SaaS because the state doesn’t tax it and neither will they.

If this sounds confusing, it can be. The simplest approach:

• Collect state and state-administered local sales tax on tangible product sales.

• For SaaS or non-tangible digital services, generally don’t collect state sales tax, but do collect any applicable home-rule city tax if the customer is in a home-rule city that taxes SaaS. You might need to register in that city to remit those taxes. If you’re unsure, consult a Colorado sales tax expert or the city’s tax office for guidance on digital goods taxation.

As a side note: “digital goods” like downloaded movies or music are generally taxable by Colorado as tangible property, but “digital services” like SaaS are not taxed by the state. The nuance is in how the law defines taxable software. Colorado law since 2012 has exempted software provided via an Application Service Provider (i.e., SaaS) or electronically delivered software from state tax . But always confirm current rules because local variances exist.

What Sales Are Exempt from Tax?

Not all sales are subject to sales tax. Colorado law provides a variety of exemptions – situations where you do not charge sales tax on an otherwise taxable item. Here are some common sales tax exemptions relevant to small businesses:

Resale

Perhaps the most important exemption for B2B sellers is the sale for resale exemption. If you’re selling inventory to another retailer who will resell the items, that sale is exempt from sales tax. The purchaser must provide a valid resale certificate (also known as a sales tax exemption certificate) attesting that they are buying for resale. When you have that certificate on file, you do not charge tax. Essentially, wholesale transactions are not taxed (the tax will be collected when the product is sold at retail). Tip: Use Colorado’s standard resale certificate form (or the multi-state form) and verify the buyer’s Colorado sales tax license number. Keep this documentation (more on handling exempt customers below).

Food for home consumption

Groceries are exempt from Colorado state sales tax. “Food for home consumption” means items you’d buy at a grocery store to prepare and eat at home. This includes staple foods, meats, dairy, vegetables, snacks, etc., meant for home use. However, local jurisdictions may choose to tax groceries. Many Colorado cities/counties do impose local sales tax on groceries, but some don’t. As a retailer, if you sell grocery-type items, you will not charge the 2.9% state tax, but you might still need to charge whatever your city or county’s rate is if they haven’t exempted food. (For example, Denver exempts food for home consumption from its city tax as well, but some other cities do tax it – always check the DR 1002 publication for local tax treatment.) The key point is that at least the state portion is exempt on grocery sales.

Prescription drugs and medical supplies

Prescription medications, prosthetic devices, and certain medical supplies prescribed by a doctor are exempt from sales tax in Colorado, If you’re a pharmacy or medical supply store, you won’t charge tax on prescription drugs, insulin, prescription eyeglasses, etc. (Over-the-counter medicines and supplements, however, are taxable.)

Gasoline and diesel fuel

Retail gasoline, diesel, and other motor fuels are generally exempt from sales tax because they are subject to a separate fuel tax. So gas stations don’t charge sales tax on fuel (it’s taxed by the gallon via fuel tax). Propane or other fuels for heating might have different rules, but typically gasoline and special fuels are exempt from sales tax.

Machinery and manufacturing equipment

Colorado provides an exemption for manufacturing machinery and machine tools used in manufacturing a product, provided certain requirements are met (e.g., the equipment is used in a facility manufacturing tangible personal property and is over a certain value). This is intended to support manufacturing businesses by not taxing their production equipment. If your business is purchasing equipment to produce goods for sale, look into the manufacturing equipment exemption (FYI Sales 10 covers this).

Electricity, fuel, and energy for industrial or residential use

Colorado exempts electricity, gas, and fuel for residential home use from state sales tax (local taxes may still apply). There’s also an exemption for electricity and fuel used in manufacturing (with a certificate), which is an industrial utility exemption. For instance, a factory can buy electricity for the plant without sales tax if they provide a utility exemption certificate.

Sales to governmental entities

Sales made directly to the United States government or State of Colorado and its political subdivisions (cities, counties, school districts) are generally exempt. If Uncle Sam or the State is buying your product for official use, you don’t charge sales tax. (They should provide a government exemption certificate or proof of their exempt status, such as paying with a gov’t credit card.) Do note, sales to federal employees (as individuals) are not exempt – it has to be a direct purchase by the government.

Sales to charitable organizations

Colorado exempts sales to certain charitable organizations (typically 501(c)(3) nonprofits) when the purchases are for the organization’s regular charitable functions and activities . Qualifying nonprofits need to obtain a Colorado tax-exempt certificate (they apply to the DOR and get a letter or number). If a charity provides you with their Colorado exemption certificate for a purchase, you should not charge sales tax on eligible items. For example, a nonprofit school buying lab equipment for educational use could be exempt. (Make sure to get a copy of their exemption certificate or letter for your records.)

Occasional sales by charitable organizations

If you’re a charity holding a fundraising sale, Colorado allows some limited sales without tax (for example, a charitable bake sale or occasional fundraising auction might be exempt as an occasional sale). This is more for the nonprofit’s benefit, but good to know if you work with or are a nonprofit.

Agricultural products

Some agricultural related sales are exempt, such as feed for livestock, live farm animals, seeds for planting, etc. If you sell farm supplies, check which items are exempt – for instance, bull semen for breeding is exempt (Colorado has some interesting ag rules!).

Occasional (casual) sales

If you, as an individual, occasionally sell a personal item (like a used lawnmower on Craigslist), that’s generally not taxable as you’re not a retailer. But for businesses, this exemption rarely applies because if you’re in business, your sales are not “occasional” – they’re an ongoing venture. One exception might be if a business sells some used equipment or assets – those might be exempt as occasional sales of used business assets (Colorado has some provisions for sales of business assets outside the regular course of business).

Those are the big ones. Always consult the Colorado Department of Revenue’s FYI Sales Tax Exemption publications or the Colorado Sales/Use Tax Rates (DR 1002) for a comprehensive list of exempt items. But for most small businesses, the relevant exemptions will be resale, groceries, medical, charitable, and government sales. If your product doesn’t fall in an exempt category, you should assume tax applies.

Remember: If a sale is exempt, you as the retailer must keep documentation proving it was exempt (usually an exemption certificate or other evidence). Don’t just take a customer’s word that they’re exempt – always get the proper certificate or documentation.

Who Qualifies for Sales Tax Exemptions?

We talked about types of sales that are exempt; now let’s talk about buyers or situations that qualify a sale as exempt. In other words, who can you sell to without charging sales tax? Generally, exemptions depend on the status of the buyer or the use of the product:

Resellers (Retailers with a Resale Certificate)

Businesses buying goods for resale are the most common exempt customers. If your customer is another business that will resell the items, they qualify for a sales tax exemption on that purchase. They must give you a resale certificate (also called a sales tax license or exemption certificate). In Colorado, usually the buyer will provide their Colorado sales tax license number on the approved form (Colorado accepts the Multistate Tax Commission (MTC) Uniform Exemption Certificate or the Colorado-specific form DR 0563). As long as the items are for resale (or to be incorporated into a product for resale), you don’t charge tax. Who doesn’t qualify: An individual telling you “I’ll resell this on eBay” without a certificate isn’t enough – they need to be a registered business with a license to claim this. Always get the certificate!

Government entities

The federal government is exempt from state tax by law. Colorado also exempts state and local government agencies. So if you’re selling office supplies to the local school district (a government entity) and they pay with district funds, that sale is exempt. Government buyers should provide proof, such as a purchase order or certificate that indicates their exempt status (often an exemption number or an exemption certificate form DR 1375 for state certificate). Foreign diplomats with tax-exempt cards also fall in this category. The key is the purchase must be paid for directly by the government (for instance, a federal credit card that’s clearly for federal purchases).

Charitable and religious organizations

Nonprofits that have been granted tax-exempt status by Colorado (typically 501c3 charities) can purchase items tax-free if the items are used in their charitable mission. To qualify, the organization needs a Colorado exemption certificate number. Common examples: churches buying supplies for services, charitable hospitals buying medical equipment, etc. The organization will give you a copy of their tax-exempt certificate or letter from the state and possibly a completed Colorado exemption certificate form for your records. Note: Not every nonprofit automatically qualifies – they must be the type that the state recognizes as tax-exempt (usually charitable, religious, or educational orgs). Also, if the purchase is for the org’s fundraising or unrelated activity, it might not be exempt. Generally, though, if they have the certificate, you honor it.

Industrial manufacturers 

Companies that purchase certain machinery, machine tools, or materials for use in manufacturing may qualify for exemption (with a special form). The people who qualify here are manufacturers with a Colorado exemption certificate for manufacturing equipment (they’d provide form DR 1191 or similar). As a retailer, you might not run into this unless you sell industrial equipment.

Contractors and building materials

This one is tricky – contractors usually have to pay tax on materials, but if they are doing a government job or other exempt project, they might have an exemption certificate for the materials. Colorado allows a contractor building a structure for a tax-exempt entity (like a government building) to purchase materials tax-free if they have a construction exemption certificate for that project. So in some cases, a construction company might present you with a project-specific exemption certificate to not pay tax on lumber, etc., for say a new public school building. This is a specific scenario, but worth mentioning as a “who” that could qualify.

Agricultural producers

Farmers and ranchers may have exemptions for certain purchases (like feed, seed, livestock). They typically need to provide an agricultural exemption certificate or their state agricultural exemption number. If you sell farm equipment, qualifying farmers might get a sales tax exemption on things like tractors (Colorado has some exemptions for farm equipment meeting certain criteria). Here, the “who” is the farmer/rancher who meets the exemption requirements.

Others

There are a few other unique ones (e.g., sales to certain space flight entities, etc., but those are very niche!).

The people who can buy without tax in Colorado are usually resellers, governments, nonprofits, and certain specialized industries with the proper documentation. If the buyer doesn’t clearly fall into one of these categories (or the product isn’t for an exempt use), then they likely must pay sales tax.

How to Handle Exempt Customers

So you have a customer who says they’re exempt from sales tax – what do you do? It’s important to handle these situations correctly to protect your business. Here’s a quick guide:

1. Obtain a proper exemption certificate: Whenever a customer claims exemption, have them fill out and sign a sales tax exemption certificate. In Colorado, the standard form for most exemptions (resale, government, charity) is the Colorado Sales Tax Exemption Certificate (Form DR 0563) or the Multijurisdictional Exemption Certificate (which Colorado accepts). The certificate will require the buyer to state their name, address, tax ID (like their sales tax license number or exemption number), the reason for exemption (resale, government, etc.), and to sign it. This form is your proof if the taxman ever asks why you didn’t collect tax on that sale. If the customer is a government entity or charity with a state-issued exemption letter, you should get a copy of that letter and still have them complete the certificate for your records.

2. Verify the certificate details: Check that the certificate is filled out completely and signed. Ensure any ID numbers (like a sales tax license number or exemption number) look valid. For resale certificates, the buyer’s sales tax license should be current (not expired). You can verify a Colorado sales tax license via the DOR if needed. Also make sure the type of item being sold matches the type of exemption. (E.g., if someone gives you a resale certificate, are they actually in the business of reselling this type of item? If a restaurant gives a resale certificate for buying raw meat – that makes sense, they’ll resell it as meals. But if a restaurant tries to buy cleaning supplies tax-free claiming resale, that’s not valid – they’re the end user of those supplies.) It’s on the seller to collect valid certificates in good faith.

3. Do not charge sales tax on that sale: If the paperwork is in order, remove sales tax from the invoice for that customer. Mark your invoice or sales record as exempt and note the customer’s exemption number or certificate on it. Your point-of-sale system should have a way to flag a sale as tax-exempt (usually by customer type or by manually removing the tax).

4. Keep the certificate on file: Store exemption certificates safely (digital scans are fine). Colorado requires you to keep records of exemption certificates, typically for at least three years (which is the general statute of limitations for audits) – though best practice is to keep them 4–5 years. If that customer comes back for multiple purchases and their certificate is still valid, you don’t need a new form every time (most certificates can be used for future purchases as “blanket” certificates, until expired). But keep track of expiration dates – e.g., Colorado resale certificates expire after a certain period (if the customer’s sales tax license expires, their resale certificate is no longer valid). Government or nonprofit certs might not expire per se, but the documentation might. It’s wise to refresh certificates every few years or when a new one is issued.

5. Report the exempt sales on your return: When filing your Colorado sales tax return, you will include the total gross sales and then deduct the exempt sales. Colorado returns have lines for deductions or exempt sales. For instance, you’d include the amount of a tax-exempt sale under the appropriate exemption category on the return (such as “Wholesale Sales” or “Sales to Exempt Entities”). This way, the state knows those sales were made but sees that you didn’t tax them for a legitimate reason.

Handling exempt customers correctly is crucial. If you skip the paperwork and just don’t charge tax, you’re taking a risk. During an audit, if you can’t produce a valid exemption certificate for a tax-free sale, the state can assess the tax against you, the retailer, plus penalties. Always err on the side of getting that certificate upfront. It might feel awkward to insist on forms, but legitimate exempt buyers are used to it and will gladly provide the documentation. It’s part of doing business.

What If I Lose an Exemption Certificate?

Mistakes happen – maybe that signed resale certificate from a customer got misplaced or the digital file got corrupted. What now?

Firstly, don’t panic. You have a couple of options:

• Ask the customer for a new certificate: The simplest solution is often the best. Reach back out to the customer (the exempt entity) and explain that you need a new copy of their exemption certificate for your records. Most businesses or organizations will understand and provide a replacement. They may need to fill out a new one with a current date. Be sure the new one is still valid (e.g., their license number hasn’t changed or expired). Doing this sooner rather than later is key, especially if you suspect an audit could happen.

• Check if you have other proof: Perhaps you lost the physical certificate but you have an email from the customer with their tax-exempt number, or a purchase order stating their tax-exempt status. While the certificate is the gold standard, any documentation is better than nothing. Keep whatever you have and attach it to the sales record. In some cases, an auditor might accept alternative evidence, especially if it’s a government or known charity. But they are within their rights to insist on the formal certificate.

• If all else fails, and you’re audited: Without a certificate, the auditor may assess tax on that sale. That means you (the retailer) could be on the hook to pay the tax that should have been collected, plus penalties/interest for that transaction. This is obviously what we want to avoid. If you truly cannot obtain a copy or replacement certificate, you might consider (if it’s a big amount) informing the customer and seeing if there’s any way they can help substantiate the exempt sale (like providing copies of their own records). But ultimately, the burden is on the retailer.

• Preventing lost certificates: Make sure you have a good system in place for storing exemption certificates. Scan paper forms and save them in a secure digital folder (with backups). Use accounting software that tracks customer tax-exempt status. Some businesses keep a binder of all resale and exemption certs, organized by customer, so they’re easy to find. Regularly audit your own files to ensure you have what you need.

Important: Colorado requires you to keep exemption certificates for at least three years from the date of the sale (since that’s how long the state can come back and audit). But best practice is to hold onto them longer if possible (up to 4–5 years or more) in case the audit looks at older periods or if extension agreements are in play.

In summary, if you lose an exemption certificate, do everything you can to replace it or find a copy. In the worst case scenario (no certificate available), you may end up having to pay the sales tax for that sale out of pocket if audited. That’s why maintaining good records is so important when dealing with exempt sales. It’s a lot easier to spend a few minutes organizing files now than to fight an audit assessment later.

How to File and Pay Colorado Sales Tax

Alright, you’ve registered for your license and started collecting tax from customers – now comes the ongoing compliance: filing returns and paying the tax to the state. Colorado’s filing process isn’t too painful, but you need to be aware of your filing frequency, deadlines, methods, and penalties for late filing. Here’s what you need to know to stay compliant.

Filing Frequency and Deadlines

When you first get your Colorado sales tax license, the Department of Revenue will assign you a filing frequency based on your expected sales volume (which you often indicate on the registration) or a default assignment. The three possible filing frequencies are monthly, quarterly, or annually. The frequency determines how often you must file a sales tax return:

Monthly Filing

If your business collects a lot of sales tax (high volume), you’ll file every month. Colorado generally requires monthly filing if you collect $300 or more in sales tax per month on average. Many in-state retailers fall in this category.

Quarterly Filing

Medium-sized or seasonal businesses might file every three months. If your collected tax is more than $15 a month but less than $300 a month on average, the state will put you on quarterly filing. This means you file one return for each calendar quarter:

• Q1 (Jan–Mar) due April 20

• Q2 (Apr–Jun) due July 20

• Q3 (Jul–Sep) due October 20

• Q4 (Oct–Dec) due January 20 of the next year.

Annual Filing 

Small businesses with very low taxable sales might file just once a year. If you collect $15 or less in tax per month on average (which would be under $180 of tax in a year), you can be allowed to file annually. Annual returns in Colorado are typically due January 20 of the following year (so your 2025 annual return would be due Jan 20, 2026).

The state determines your frequency when you register (based on what you tell them your expected sales are). They will notify you of your filing frequency on your license or welcome letter. If your business grows or your tax collections change significantly, the DOR can change your filing frequency. For example, if you were filing quarterly but your sales tax collections jump above $300/month, they’ll bump you to monthly. Conversely, if you overestimated and you’re remitting very little, you might be moved to quarterly or annual. It’s important to read any notices from the DOR about changes to your filing schedule.

Deadlines

No matter if you file monthly, quarterly, or annually, Colorado sales tax returns are due on the 20th day of the month following the reporting period.

For instance:

• A May monthly return is due June 20.

• A Q1 (Jan–Mar) return is due April 20.

• An annual 2025 return is due January 20, 2026.

If the 20th falls on a weekend or holiday, the deadline moves to the next business day. So if April 20 is a Saturday, your Q1 return would be due Monday, April 22. Mark these dates on your calendar or set reminders – late filings can get costly (as we’ll discuss in a moment).

Colorado requires a return even for periods when you had no sales or no tax due.

If you’re registered, you must file a return for each period assigned to you. A “zero return” is a simple filing showing $0 sales, $0 tax, but it still has to be submitted. If you skip it, the state could assess a penalty for not filing . So even if you didn’t collect any tax in a month, don’t ignore the filing.

Finally, keep in mind Colorado has been making some updates (as of 2025) to allow small sellers to file less frequently (to ease burdens) and other simplifications, so stay tuned to any communications. But the general rules above hold true unless you hear otherwise from the DOR

What If the Filing Date Falls on a Weekend or Holiday?

This is a common question and an important one to clarify: If your sales tax return due date (the 20th) falls on a Saturday, Sunday, or an official holiday, what happens?

The rule is straightforward: when a due date falls on a weekend or state holiday, the deadline is extended to the next business day. No penalty will apply as long as you file by that next business day.

For example:

• The return for March (due April 20) – if April 20 is a Sunday, the return would be on time if filed by Monday, April 21.

• If the quarterly return due date of July 20 falls on a Saturday, you have until Monday, July 22 to file and pay.

Colorado generally follows this rule, as do most states. It’s always good to double-check if any unusual state holidays could affect this (for instance, Colorado Day on August 1 is not a state holiday for tax purposes, but just be mindful around things like MLK Day, Presidents Day, etc., that might land on the 20th). The DOR’s filing reminders or website will usually indicate the exact due date each period, factoring in weekends/holidays.

Pro Tip: Don’t wait until the last day to file if you can help it. But if you do, and that day happens to be a non-business day, take that extra day you’re given – just remember to actually file on that Monday or next business day. Missing the adjusted deadline will count as a late filing.

Filing Methods (Online, Paper, etc.)

Colorado offers a few ways to file your sales tax returns and pay the tax, but the state strongly encourages (and in some cases may require) online filing and payment.

Here are your options:

• Online Filing via Revenue Online (or CO Taxpayer Access Portal): Colorado’s Revenue Online system (accessible at tax.colorado.gov) allows you to file sales tax returns electronically. This is the most convenient method for most businesses. You’ll create an account linked to your sales tax license, and you can file returns, make payments, view account history, and even amend returns if needed. The online form will walk you through reporting your gross sales, deducting exempt sales, and computing the tax due for each jurisdiction. It’s much easier than doing the paper form by hand, since it will have drop-downs for jurisdictions or even pre-populated data if you’re filing based on a license with a known location. (Colorado is implementing a new system often referred to as CO FTAP – Colorado Sales and Use Tax Filing Portal – but it’s basically an updated online filing system.)

• Paper Filing: If you prefer old-school or cannot file online, Colorado still has a paper return option. The main form is Form DR 0100 – “Colorado Retail Sales Tax Return”. There are also supplementary schedules if you need to report sales by jurisdiction (Form DR 0100 Schedule A, etc.). You would need to fill out the form and either mail it in or potentially drop it off at a DOR service center. Keep in mind, paper filers don’t get the benefit of automatic calculations – you’ll have to manually calculate the state, RTD, county, city taxes for each jurisdiction where you had sales. It can be labor-intensive if you have sales across multiple areas. Because of that, and to reduce errors, most businesses opt for electronic filing. In fact, Colorado mandates electronic payment for businesses that have large tax liabilities (over $75,000 per year must pay by EFT) , and it wouldn’t be surprising if over time they phase out paper filing for most accounts.

• Local Home-Rule Filings: Remember, if you have to file with a home-rule city separately (like Denver, for example), that city will have its own filing method – often an online portal specific to the city, or a paper form for that city. This is in addition to the state filing. So you might be filing a Colorado DR 0100 for the state-collected taxes, and also filing a Denver return directly to Denver. Plan accordingly so you don’t forget one or the other. (Denver’s online system is called “Denver eBiz Tax Center”, Colorado Springs has a portal called “Compass”, etc., each city is different.)

• Payment methods: Whether you file online or on paper, you can pay your sales tax either by electronic funds transfer (EFT/ACH debit) through the online system, by credit card (Colorado may allow credit card payments but with a processing fee), or by check if filing by mail. If you file online, the easiest is to enter your bank info and have them pull the amount due on the filing date. If you’re a larger business (more than $75,000 in tax per year), the law actually requires you to pay by EFT (Electronic Funds Transfer), meaning no paper checks. The online system will guide you through this. For smaller businesses, paying online is still recommended for speed and record-keeping, but you could mail a check with a voucher if needed.

• AutoFile Services: If all of this seems like a lot, note that there are also third-party services (and accounting firms like us!) that can handle the filing for you. Some businesses integrate their sales systems with tax software to auto-generate the returns. This can be a good option as you grow, but for a small business just starting, it’s feasible to do it yourself online without too much trouble.

To summarize, online filing via Colorado’s portal is the way to go for most small businesses. It’s fast, reduces errors, and confirms receipt instantly. Paper filing is available but slower and prone to mistakes. Whichever you choose, just be consistent in meeting those deadlines.

Penalties for Late Filing or Payment

Nobody likes penalties – they’re basically money down the drain. Colorado imposes penalties for both late filing of the return and late payment of the tax, as well as interest on overdue amounts. Here’s what you’re looking at if you miss a due date:

Late Filing Penalty

If you file the return late (even if you paid all the tax on time, though usually late filing goes hand-in-hand with late payment), Colorado will assess a late filing penalty. The standard penalty is the greater of $15 or 10% of the tax due, plus 0.5% of the tax due for each additional month (or part of a month) that the return is late, up to a max of 18%  In simpler terms: there’s a minimum $15 penalty for being late at all, and it can grow with time (capped at an extra 18% if you really delay). Yes, even a $0 return can trigger a $15 penalty for lateness.

Late Payment Penalty

Colorado also describes a late payment penalty similarly – essentially the same calculation: greater of $15 or 10% of the tax unpaid, plus 0.5% per month. It sounds duplicative, and in practice, Colorado might either assess one combined penalty or both. Usually, if you file late and haven’t paid, they’ll hit you with one penalty that covers both aspects. The key is, if you don’t pay the full amount by the due date, expect a 10% hit plus 0.5% each month on the balance due. If you filed on time but underpaid, you’d still face this late payment penalty on the underpaid portion.

Interest 

In addition to penalties, interest accrues on any unpaid tax from the due date until it’s paid. Colorado’s interest rate can change year to year (it’s often a few points above the federal rate). It might be, for example, around 6%–8% annual, calculated daily. Interest is mandatory and can’t usually be waived, whereas penalties might be abated if you have a good reason (first-time issue, etc.). So paying even a day late means you owe a bit of interest. It adds up the longer it goes unpaid.

Let’s illustrate: Say you had $1,000 of sales tax due for March, but you forgot to file and pay by April 20. You realize and file/pay on April 25, 5 days late. You’d owe:

• Late filing/payment penalty: 10% of $1,000 = $100, plus the minimum $15 (but 10% is more than $15, so $100), plus 0.5% of $1,000 for the partial month = $5. So that’s $105 penalty (since it’s within the first month late).

• Interest: a small amount on $1,000 for 5 days – at, say, 8% annual, that’s roughly $1.10 of interest. Not huge for 5 days, but still.

So you’d pay your $1,000 tax + $105 penalty + ~$1 interest.

Now imagine you completely forgot and filed 6 months late – that penalty would cap out closer to 18% potentially, and interest for 6 months would add ~4%. It can become significant.

Additionally: If you don’t file at all, Colorado might file an estimated return for you and send you a notice with an estimated tax due (often way overestimated), including penalties. That’s a nightmare scenario. Always better to voluntarily file as soon as you remember, even if late, rather than waiting for the state to come knocking.

One more thing – habitual late filers can also risk license revocation in extreme cases, though that’s rare. But technically, DOR could revoke your sales tax license if you repeatedly fail to file or pay.

Good news: Colorado (like many states) may offer penalty relief for first-time errors or if you have a reasonable cause. If you do slip up, you can write to them to request a waiver of the penalty (interest usually cannot be waived). Often, if you have a clean record, they might waive the first penalty as a courtesy. But that’s not guaranteed.

The best strategy is to avoid all this by filing and paying on time. Mark your calendar for the 20th, or better yet, aim for the 15th as a personal deadline to give a buffer. Use the online system’s scheduled payment feature to ensure the money is pulled on time. And if cash flow is an issue causing a delay, remember that it’s better to file the return on time even if you can’t pay in full. That way at least you avoid the filing penalty (you’d still get a payment penalty on the unpaid amount, but at least one piece of the penalty puzzle is mitigated).

Are There Any Discounts or Incentives?

Yes – Colorado, like many states, offers a small “vendor fee” discount to retailers for the timely filing and remitting of sales tax. It’s essentially a way of saying “thanks for collecting taxes on behalf of the state, here’s a tiny cut for your administrative effort.”

Timely Filing/Payment Discount (Vendor’s Fee)

 If you file your return and pay the tax by the due date, Colorado allows you to retain a portion of the state sales tax due. Currently, the standard rate is 4% of the tax collected, up to $1,000 per filing period. This is often referred to on the return as the “service fee” or “vendor fee.” For example, if you collected $500 in state sales tax this month, you can take a 4% discount = $20, and only remit $480 to the state. Essentially, you keep $20 as a reward for timely compliance. The $1,000 cap means if you collected a huge amount of tax (above $25,000 in a month, since 4% of $25k is $1k), the maximum you can ever retain is $1,000 for that month. Most small businesses won’t hit that cap.

Exception for very large retailers

 Beginning in 2022, Colorado adjusted this discount so that large retailers with taxable sales over $1 million per month do not get to keep the vendor fee. This was a change to save the state some money and target relief to smaller businesses. So if you’re a giant company making more than $1M in sales in Colorado in a month, you don’t get the 4% discount (it’s 0% for that period). But if you’re a small business (which most of our readers are), this likely doesn’t affect you – you’ll take the 4% as usual. If you have one anomalous big month that crosses that threshold, the rules were a bit unclear if you lose it just for that month or going forward, but for our purposes, assume if you’re routinely under that, you get your vendor fee.

How to claim the discount

 When filing the return, there’s a line to enter the vendor/service fee. If filing online, the system will usually calculate it for you if you indicate you’re filing on time. If on paper, you compute 4% of the state tax (and state-collected local taxes, since the vendor fee applies to the entire state-administered portion, not just the 2.9% – I need to clarify: Colorado’s vendor fee generally applies to the sum of state and state-collected local taxes on the return). Then you subtract that on the return to arrive at the net amount due.

Important: If you file late, you are not allowed to take the vendor fee. The form will instruct that if the return is late, the vendor fee is forfeited. So don’t even think about taking that discount if you missed the deadline – it’s one of the first things an auditor will disallow.

Local vendor fees 

Some home-rule cities might also allow a timely filing discount on their local city sales tax. When filing state-collected local taxes, the vendor fee covers those as well automatically. But for separate city filings, check that city’s rules. Many cities in Colorado have reduced or eliminated their vendor fees, but a few might have something small like 1%. Since this guide is focused on the state process, the main one to know is the state 4%.

Other than the vendor’s fee, there aren’t really “incentives” per se with sales tax. It’s more about avoiding penalties than seeking rewards. The vendor fee is essentially your reward for being compliant.

Simplification for Small Remote Sellers

Colorado used to have a rule that small out-of-state sellers under $100k didn’t have to collect. Now it’s mandatory if over $100k, but if you’re under that threshold, you technically don’t have to register or collect at all (that’s not an incentive, just an exemption from duty). Once you cross it, you must comply, and then you get the same vendor fee etc.

To wrap up this section: Always take the vendor’s fee discount when you file on time! It’s free money (legally allowed). Just be sure to accurately calculate it. For example, if you owe $100 in tax, subtract $4 (4%) and pay $96. It might not sound like much, but over time it can add up – and as a small business, every bit helps. Think of it as covering your postage or software costs for filing the return.

5 Tips to Avoid Common Mistakes When Filing Colorado Sales Tax

Filing sales tax can be tricky, and many small business owners slip up on little details that lead to headaches later. Here are five practical tips to help you avoid common Colorado sales tax mistakes and save yourself time, money, and stress:

Know Your Sourcing and Apply the Correct Rate

Always use destination-based sourcing for Colorado sales. A common mistake is charging the wrong tax rate – for instance, using your city’s rate for all sales, even those delivered elsewhere. Make sure you’re charging customers the correct combined rate for their location. Tools like Colorado’s online rate lookup or tax software can help. Incorrect rates can lead to under-collection (and you’ll owe the difference) or over-collection (customers charged too much). Keep updated on rate changes, especially for special district taxes (RTD, cultural district, etc.) that can change boundaries or rates. And if you sell into home-rule cities, remember you might need to collect their tax separately. Bottom line: verify the address and the tax rate for every taxable sale.

Don’t Ignore Home-Rule Cities

Colorado’s dual tax system trips up many businesses. If you only file with the state, you might assume that covers everything – not so if you have sales in home-rule cities. For example, if you ship a product to an address in Denver, collecting and remitting the state tax alone isn’t enough; Denver wants its cut directly. Failing to register and file in a home-rule city where you have nexus (physical presence or significant sales) is a mistake that can result in notices and assessments from that city. To avoid this: identify any home-rule jurisdictions where you operate, deliver, or have customers. Check their rules on nexus (many follow the $100k threshold too for remote sellers). Then get licensed in those cities and file their returns as needed. It’s extra work, but it’s the law in Colorado. A tax professional or the Colorado Municipal League’s resources can help map out which cities you need. Don’t assume the state handles all local taxes – it doesn’t.

Always File on Time – Even $0 Returns

Procrastination or forgetfulness can cost you. Mark your calendar for the 20th (or appropriate due date) every filing period. Even if you had no sales or your business was closed for a month, file a zero return. Many business owners get a nasty surprise when a $15 penalty hits for not filing, even though no tax was due. Setting reminders or enrolling in e-mail alerts from the DOR can help. If you use accounting software, close your monthly books by the 10th or 15th so you have numbers ready to file. If something truly prevents you from filing (illness, etc.), at least try to notify the state – but generally, there’s no extension for sales tax deadlines. Develop a routine: for instance, if you’re a monthly filer, block out a couple of hours on the 15th of each month to do the sales tax return. Consistency prevents last-minute scrambles and errors. And remember, if the 20th is a weekend/holiday, you get the next business day – use it if needed, but don’t push your luck beyond that.

Keep Exemption Certificates and Records Organized

A very common mistake is failing to keep documentation for tax-exempt sales. It’s easy in the moment to accept a customer’s tax-exempt status verbally and not get the paperwork. But months or years later, in an audit, lacking that certificate could mean you owe the tax. Avoid this by creating a system from day one: whenever someone says “I’m tax-exempt,” pause the sale until you have a signed exemption certificate in hand (or email). Create a file (digital or physical) for these certificates. If you have recurring exempt customers, make sure their certificate is up to date (resale certificates, for example, might need renewal every few years). Also, double-check that you’re not charging tax to those exempt customers once you have their info – sometimes point-of-sale systems need a flag set to make a customer non-taxable. Conversely, ensure you do charge tax to everyone who is supposed to pay it. Simple record-keeping diligence will save you from common audit findings. A best practice is to review your sales each month for any tax-exempt transactions and confirm you have supporting certs for each. If not, chase them down while the trail is warm.

Take Advantage of the Vendor’s Fee (Timely Filing Discount)

Believe it or not, a frequent mistake is businesses not taking the little vendor allowance on the return, essentially leaving money on the table. If you’re filing on time, Colorado lets you deduct 4% of the tax due (up to $1,000) as a service fee. Some people overlook this line or think it’s not worth it. It is worth it! Over a year, those 4% savings could add up to a significant amount – effectively a reduction in your business expenses. Always calculate and deduct the vendor’s fee when you file by the due date. It’s legally yours to keep. On the flip side, don’t mistakenly take the fee if you filed late; that’s a no-no and will get reversed, possibly with penalties. But as long as you’re on time, use it. Think of it as a small reward for your compliance – you earned it by doing the paperwork on time. If you use accounting software, ensure it doesn’t automatically zero out that line; you might have to manually input the discount. It might seem like a tiny detail, but it’s a common miss. Be smart and grab that discount.

By following these tips – proper rate sourcing, minding local taxes, punctual filing, record-keeping, and using discounts – you’ll avoid most of the pitfalls that snare other small business owners. Sales tax may never be fun, but it doesn’t have to be painful if you stay on top of these best practices.

Colorado Sales Tax FAQs for Small Business Owners

You’ve learned a lot about Colorado sales tax, but you might still have some specific questions. Here are answers to some frequently asked questions that many small business owners and startups have:

Do I need to collect Colorado sales tax on online sales to Colorado customers if my business is not based in Colorado?

If you are an out-of-state (remote) seller, you are required to collect Colorado sales tax only if you have sales tax nexus in Colorado. After the 2018 Supreme Court Wayfair decision, Colorado set an economic nexus threshold of $100,000 in gross sales into Colorado in a calendar year. If you exceed $100,000 in sales to Colorado customers (and you have no physical presence in CO), you must register for a Colorado sales tax account and start collecting and remitting tax on sales to Colorado (including state and applicable local taxes). If you’re below that $100,000 threshold in total sales to Colorado, you generally are not obligated to collect Colorado sales tax (though voluntarily registering is an option, you might just let customers handle use tax). Keep in mind, physical presence (like having inventory in a Colorado warehouse or a sales rep in Colorado) creates nexus regardless of sales volume – in that case, you’d need to collect tax even if sales are small. Economic nexus is currently the main rule for purely remote sellers: $100k is the magic number. Once you cross it, get that license and start collecting from Colorado customers to avoid any compliance issues.

What is the Colorado state sales tax rate, and how do local taxes factor in?

The base state sales tax rate in Colorado is 2.9%. This rate is the same statewide. However, Colorado allows cities, counties, and special districts to impose their own sales taxes on top of the state rate. Combined sales tax rates therefore vary depending on the location of the sale. For example, in Denver the total rate is around 8.81% (Denver’s own tax + state + others), in Colorado Springs it’s about 8.2%, in some smaller towns it could just be 2.9% if no local taxes. The average combined rate in Colorado is roughly around 7.5%–8%, but some areas with multiple district taxes can approach or exceed 10%. In fact, the highest total rate in parts of Colorado (as of 2024) is around 11.2%. Always check the specific rate by using Colorado’s online rate lookup tool or the DR 1002 publication which lists all city/county rates. To summarize: 2.9% goes to the state, the rest of the percentage (if any) goes to the local jurisdictions. When you file your return, you’ll break out how much of the tax collected goes to each jurisdiction. But for billing customers, you typically just charge one combined rate. Make sure your point-of-sale or shopping cart is updated with the latest Colorado rates by location.

Are shipping charges taxable in Colorado?

Generally, no – shipping charges are not taxable in Colorado as long as they are separately stated from the price of the product and the shipment occurs after the sale. If you list “shipping” or “delivery” as a separate line on the invoice, and it’s a fee for delivering the item to the customer, you do not charge sales tax on that amount. However, if you include shipping in the product price or don’t separately itemize it, then effectively the customer is paying one lump sum for the item delivered, and tax would apply to the whole amount. Another nuance: if a customer has the option to pick up the item (thus avoid shipping) but chooses delivery with a charge, that delivery charge is seen as optional and can be non-taxable. The Colorado regs say transportation charges are presumed exempt if separable from the sale. So, best practice: always break out shipping on the invoice. One caution: charges that are more in the nature of handling or required delivery might be seen as part of the sale if not clearly just postage/freight. But in most cases, your UPS or mailing charge line item is safe from tax. Note: This assumes you’re shipping within Colorado. If you ship out of state, Colorado tax wouldn’t apply at all (that’d be governed by the destination state’s rules). And conversely, if you’re out-of-state shipping into Colorado and you have to collect CO tax, the same rule about shipping being non-taxable applies.

If my business had no sales in a particular month (or quarter), do I still need to file a sales tax return?

Yes. Colorado requires that every active sales tax license holder file a return for each period, even if the sales (and tax) for that period were zero. This is commonly called a “zero return.” Failing to file because you had nothing to report will trigger the system to mark it as a missed return, and you could receive a failure-to-file notice with a minimum penalty (usually $15). It only takes a minute to file a zero return (you can do it online by entering 0 in the relevant fields), so be sure to do it. If you truly have stopped doing business, then you should formally close your sales tax account rather than just not filing. As long as the account is open, the state expects a return. Many small businesses that are seasonal forget this – e.g., you make sales only in the summer, but you still must file returns for the off-season months showing zero. So yes, always file, even $0, until your account is closed or changed to annual filing by the state.

My business only sells wholesale (B2B for resale). Do I need a sales tax license, and do I have to file returns?

Surprisingly to some, yes, you still need a Colorado sales tax license even if you only conduct wholesale, tax-exempt sales . The license isn’t only for collecting tax; it’s also your permit to legally make sales in the state (and purchase for resale). When you apply, you’ll indicate you’re a wholesale business. Colorado will likely issue a sales tax license but note it as wholesale, and importantly, they waive the $50 deposit in this case. You will still be expected to file returns (likely annual or quarterly) reporting your sales, but you’ll show them as wholesale exempt sales. That way, the state has a record. This also allows you to furnish your own resale certificate to your suppliers to buy inventory tax-free. So even if you never collect a penny of sales tax because all your customers are resellers, get the license and stay in compliance with filing. It’s a formality, but a necessary one.

Does my Colorado sales tax license expire? How do I renew it?

Yes, Colorado sales tax licenses are not perpetual. They run on a two-year cycle and all licenses expire on December 31 of every odd-numbered year (2023, 2025, 2027, etc.) . You must renew your license by that expiration date to keep it active. The renewal fee is $16 per location (same as initial fee). The Department of Revenue usually sends out renewal notices or opens up online renewals a few months before expiration. For example, as 2025 draws to a close, expect to renew for the 2026-2027 period. If you fail to renew, your license will expire and technically you’re not authorized to collect tax (which can lead to problems). Renewing is typically done through the Revenue Online site or by returning a form with payment. It’s pretty straightforward – mostly just confirming your business info and paying the fee. Mark your calendar for every odd year-end. (If you obtained a new license late in an odd year, you still have to renew at year-end; Colorado does pro-rate new license fees depending on when you started, e.g., it might have only cost $4 if you got it in the final half-year of the cycle, but you’ll then pay $16 at renewal to catch the next two years.) So yes, keep an eye out and renew timely.

How do I get my $50 deposit back from the state?

If you paid the one-time $50 deposit when you got your sales tax license, the state will automatically refund that $50 after you’ve collected and remitted $50 in state sales tax. In practice, this usually means once your cumulative sales tax payments to the state reach $50, they apply the deposit as a credit on your account or send a refund check. Often, the deposit is returned as a credit on one of your future tax returns (you might see a $50 credit applied to offset tax due once you pass the threshold). This typically happens fairly early for most businesses, since $50 in tax isn’t a huge amount of sales (e.g., $50 in tax corresponds to about $1,724 in taxable sales at 2.9% state tax – though if you also collect local taxes, note the deposit refund is keyed to the state portion). If you don’t see the refund, you can contact DOR, but generally it’s automatic. If your business never ends up collecting $50 in tax (say you stopped business early), you can file a claim for a refund of the deposit after closing your account – there’s a form (DR 0137) for claiming refunds, which can be used to get the deposit back in that case. But for most, it just comes back on its own once you’re up and running. Keep an eye on your account statements to catch when it’s credited or refunded.

Do I have to collect sales tax on services my business provides?

Generally, no – most services are not taxable in Colorado. If your business is purely service-based (consulting, marketing, software development, design, etc.), you typically do not need to charge sales tax on those service fees. The exception is if your service is one of those specifically taxed (like short-term lodging, catering, telephone service, etc., as discussed earlier). Also, if your service is bundled with a sale of a product, the product part is taxable (and sometimes the whole bundle might become taxable if not separately stated). For example, if you sell a piece of equipment and charge a separate installation fee, the equipment is taxable but the installation labor is not, as long as you separately state it on the invoice. But if you quote one combined price for “equipment + install”, the entire amount could be taxed. So, for pure services, no tax. For mixed sales, separate the service charges to keep them non-taxable. One more nuance: some home-rule cities might tax certain services locally (though uncommon, some might tax entertainment or specific categories). But the state of Colorado itself doesn’t tax professional or personal services apart from the narrow categories we covered. When in doubt, check Colorado’s FYI publications for your industry to see if any part of what you do is taxable.

These FAQs address some of the most common points of confusion. If you have a question that isn’t covered here, Colorado DOR’s website has a comprehensive Sales Tax Guide and FYI documents that might have the answer. And of course, you can reach out to us for personalized help!

Understanding and managing Colorado sales taxes can be complicated, especially with all the state vs. local rules. But with this guide and a bit of careful organization, you’ve got the foundation to handle it like a pro. Still, you don’t have to go it alone.

Feeling overwhelmed or just want expert backup? We’re here to help!

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And don't forget to check out our blog about Economic Nexus, which serves as an invaluable resource for businesses who have sales that are subject to sales tax.

This blog is for informational purposes only and the information is accurate as of 2023-06-05. If you want legal advice on sales tax law for your business, please contact a State and Local Tax (SALT) professional. Keep in mind that sales tax regulations and laws are subject to change at any time. While we strive to keep our blog current, this blog possibly may be out of date by the time you review it.