Sales tax can be an intricate, multifaceted concept to master, particularly for small businesses looking to ensure they remain compliant with state laws and regulations. And when it comes to Colorado, the tax landscape is no different - it's packed with its own set of unique rules, rates, and exemptions. But don't be daunted!
In this blog post, we aim to encapsulate "Colorado Sales Tax" in a word: comprehensible. We'll break down the complexities of Colorado's sales tax into digestible information and guide you step-by-step through the key aspects of understanding and managing your sales tax obligations in the Centennial State. Whether you're a seasoned entrepreneur or a newcomer to Colorado's vibrant business landscape, let's unravel the complexities of Colorado sales tax together.
|
Table of Contents |
✔️ Do you need to contact the Colorado Department of Revenue?
✔️ Unsure if you should call them or contact them through their website?
✔️ Do you wonder what information you need handy before you contact them?
If you answered “Yes” to any of these questions, you’re in exactly the right place!
You may contact the Colorado Department of Revenue by:
Emailing them at DOR_TaxpayerService@state.co.us (the typical reply time is 2-4 weeks)
Visiting one of their office locations or
Sending them a (strongly worded) letter:
Colorado Department of Revenue
P.O. Box 17087
Denver, CO 80217-0087
There are three pieces of information that you should have on hand before you contact the Colorado Department of Revenue.
Be sure that you have the following handy:
Taxpayer Name
EIN
Sales & Use Tax ID Number (don’t worry, EIN will suffice if this number is misplaced)
If you are calling on behalf of someone else, or having someone else call on behalf of your business, you need to have one more piece of information: An active, signed Colorado Power of Attorney (PDF).
Why?
If you do not have this, they will simply not be permitted to talk to you. This document authorizes the tax authorities in Colorado to discuss a business’ taxes with someone other than the owner.
If you have any more questions, please feel free to contact us so we can assist you with your sales tax needs.
Understanding nexus is crucial for small businesses, especially when it comes to tax compliance. Nexus refers to a business's connection with a state that requires them to collect and pay taxes in that state.
As a small business owner, you may have a nexus in Colorado without realizing it. If you've ever wondered, "Do I have a nexus in Colorado?" then it's crucial to understand the five types of nexus that might affect you: Physical Nexus, Economic Nexus, Affiliate Nexus, Click-Through Nexus, and Marketplace Nexus. Knowing these will help you determine if you are obliged to pay sales tax within Colorado.
In Colorado, several activities can create a sales tax nexus. These are broadly categorized into physical nexus, economic nexus, affiliate nexus, click-through nexus, and marketplace nexus. Let's delve a little deeper into each one to understand what these mean for your small business.
As a small business owner, it is essential to understand and adhere to tax regulations. In Colorado, if your business has nexus, you will need to register for a sales tax license. This license allows you to legally collect sales tax from customers on your taxable goods and services. Let's delve into the steps of registration, including the information required, the associated costs, the need for a Federal Tax ID number or EIN, and potential additional registrations with other agencies in Colorado.
Before you get started, there are five sales tax licenses available. Let’s review each one so you can see which one you need to apply for.
Standard Retail License
If you have both retail and wholesale sales, you only need to apply for a retail license. This will allow you to file sales tax returns that include retail and wholesale sales.
Wholesale License
Single Special Event License
For a temporary location other than your regular business location and valid for one event only where there are three or more vendors. This is a two-year license that is free to all standard sales tax license holders.
Multiple Special Event License
If you plan on attending more than one special event, you do not qualify for the Single Special Event License. Don’t fret! You have another option.
You can apply for the Multiple Special Event License, which remains in effect for a two-year period. Just remember, each event must have at least three vendors to be a qualifying event for this license.
Mobile Vendors
Mobile vendors (selling out of a truck or other vehicle) must have a sales tax license for their main office location. They should add jurisdiction "sites" to their sales tax license. There is no additional fee for these sites.
Most Colorado sales tax license types are valid for a two-year period and expire at the end of each odd-numbered year.
If you have one business location where you will make retail and wholesale sales, apply for the Colorado Sales Tax License use MyBizColorado or the Sales Tax / Wage Withholding Account Application (CR 0100).
If you have more than one business location where you will make retail and wholesale sales, apply for the Colorado Sales Tax License with the Sales Tax / Wage Withholding Account Application (CR 0100).
A home rule state is one where the state constitution grants municipalities and/or counties the ability to pass laws to govern themselves as they see fit, so long as they obey the state and federal constitutions.
This principle allows cities, municipalities, or counties to have their own tax laws and regulations separate from, or in addition to, those of the state. The specifics of what powers are given to the municipalities depend on the state's constitution and laws.
As it pertains to sales tax, in a home rule state, local jurisdictions like cities or counties can administer their own sales tax, which may include setting their own rates or determining their own taxability rules. This could potentially make sales tax compliance more complex for businesses, as they need to adhere not only to state laws but also to the separate laws of each local jurisdiction where they have nexus.
If yo do business in one of the following home rule cities, you must apply for and maintain a license and file and pay sales tax outside of the Colorado state return:
|
Arvada |
Cortez |
Greeley |
Ridgway |
|
Aspen |
Craig |
Greenwood Village |
Rifle |
|
Aurora |
Crested Butte |
Gunnison |
Sheridan |
|
Avon |
Dacono |
Gypsum |
Silverthorne |
|
Black Hawk |
Delta |
Lafayette |
Snowmass Village |
|
Boulder |
Denver |
Lakewood |
Steamboat Springs |
|
Breckenridge |
Durango |
Lamar |
Sterling |
|
Brighton |
Edgewater |
Littleton |
Telluride |
|
Broomfield |
Englewood |
Lone Tree |
Thorton |
|
Carbondale |
Evans |
Longmont |
Timnath |
|
Castle Pines |
Federal Heights |
Louisville |
Vail |
|
Castle Rock |
Fort Collins |
Montrose |
Westminster |
|
Centennial |
Frisco |
Mt. Crested Butte |
Wheat Ridge |
|
Central City |
Glendale |
Mountain Village |
Windsor |
|
Cherry Hills Village |
Glenwood Springs |
Northglenn |
Winter Park |
|
Colorado Springs |
Golden |
Parker |
Woodland Park |
|
Commerce City |
Grand Junction |
Pueblo |
It's definitely a good thing to understand before beginning this process!
You get a gold star! ⭐
Have this information handy before you sign up for Colorado Sales Tax Account:
Type of Organization
Business Name
Business Address - Physical + Mailing
Specific products being sold
Owner/Partner/Corp. Officer Full Name, Title, FEIN, SSN, Address, Phone Number
If business was acquired, Prior Business/Owner Name, Address, Date of Acquisition
Estimated amount of tax collected
First day of sales
Type of Sales (Retail, Wholesale, Charitable, Retailers)
Once you have this information accessible, you can go online and register for your sales tax license at the MyBizColorado website.
There are two fees that will be paid to the state: license fees and a deposit.
License fees are $16 for a two year period, which is prorated in increments of 6 months. More information can be found on page 1 of the CR-100-AP form.
If you are requesting a new account, there is a $50 deposit that must be remitted with the Colorado Sales Tax Application (CR 0100). The $50 deposit will be refunded automatically after a business has collected and paid $50 in state sales taxes. This is only
Yes, you typically need a Federal Tax ID Number or Employer Identification Number (EIN) to register for a sales tax license in Colorado. The EIN is a unique nine-digit number assigned by the IRS to business entities operating in the U.S. for the purposes of identification. If you're a sole proprietor, you may be able to use your social security number instead.
Because each business is different, you have to contact the Colorado Department of Revenue to verify which government agencies you are required to register with.
Some potential agencies include:
But this is a non-exhaustive list and it’s important to make sure your business meets all the regulatory requirements for its industry.
Collecting sales tax in Colorado involves understanding the specific tax laws and rates applicable to your business's goods or services. Once you're registered and have your sales tax license, you'll add the appropriate sales tax to every taxable transaction and collect it from your customers.
You'll collect the sales tax at the time of the sale. For brick-and-mortar businesses, this is typically added at the point of sale. For online businesses, most major eCommerce platforms have built-in features that can collect sales tax automatically.
Colorado is a destination-based sales tax state. This means that if you are running a business that ships products to customers in Colorado, you are required to charge sales tax based on the location of the buyer, not the location of your business. This includes all relevant state, county, city, and special district sales taxes that may apply in the buyer's location.
For in-person sales, the tax rate of the location where the sale is made would apply. It's crucial to understand these principles to properly calculate and collect the correct amount of sales tax from customers, ensuring compliance with Colorado's sales tax laws.
That is a tricky question, because Colorado has a state sales tax rate of 2.9% and there will be additional county, city, and special district taxes that will need to be applied. Lucky for you, the state of Colorado has a handy-dandy sales tax rate tool which can be found here.
Need a little refresher on use tax? Check out our sales tax vs use tax blog here.
Most goods and some services are subject to sales tax in Colorado. This typically includes tangible personal property like furniture, appliances, and electronics, along with certain services like accommodations and telecommunications services.
TLDR: It depends... The taxability of Software-as-a-Service (SaaS) in Colorado can be nuanced and may require research and a letter ruling from the State.
Colorado's sales tax applicability hinges on whether a digital product, in its physical form, would qualify as taxable tangible personal property, a principle known as the "true object test". It is critical to discern whether your digital offering is subject to tax in Colorado. If there's any ambiguity about the taxability of your product, obtaining a Private Letter Ruling for clarity is advisable.
In the Colorado Revised Statutes, Sec. 39-26-104 outlines which services are deemed taxable, and SaaS doesn't appear within these parameters. Thus, SaaS is probably not taxable based on this provision. However, if you're a SaaS provider in Colorado, seeking a Private Letter Ruling can help confirm the tax status of your product in the state.
Colorado Revised Statutes (C.R.S.) 39-26-104 provides details about taxable services. Additionally, according to Colorado H.B. 1312 and 1 Code Colo. Regs. §39-26-102(15), the method of delivery doesn't influence a product's taxability, and digitally transmitted tangible personal property can be subject to tax."
The following home rule cities consider SaaS taxable:
Arvada
Boulder
Crested Butte
Denver
Englewood
Fort Collins
Glendale
Glenwood Springs
Golden
Grand Junction
Lafayette
Northglenn
Thorton
Wray
The following goods and services are generally exempt from sales taxes in Colorado:
Food, including food sold through vending machines
Residential Energy Usage - all gas, electricity, coal, wood and fuel oil
The State of Colorado currently exempts charitable organizations and government agencies from sales tax.
When you do business with buyer who is exempt from paying sales taxes, you do not have to worry about filling out any paperwork because that is the buyer’s responsibility. However, you as the retailer must collect a Colorado Transaction Privilege Tax exemption certificate at the time you sell the buyer your products. Be sure to keep this on file so you can justify any tax-exempt sales in the case of an audit. If you lose the certificate or fail to obtain a copy, you risk having to pay the outstanding taxes yourself.
This is a really great question. For retailers, it is crucially important that you keep a copy of the certificate on file. Otherwise, you will be unable to verify that the buyer was exempt from paying sales tax in the event of an audit. In that case, the tax authorities will put the burden of paying the sales tax on you, the retailer.
However, you may want to know that the Department of Revenue provides a service where you can verify a business or organization’s tax exempt status through the “Additional Services” tab on Revenue Online. You would need to have the sales tax account number or exemption certificate number the buyer was provided with. You may want to make a note of this information as a backup in the instance you do lose a copy of the certificate.
There is no reason to worry if you are working with us. We will be sure to keep your sales tax exemption certificates safe and sound in our shared Dropbox account.
It is time to talk about filing and paying your sales taxes in Colorado. In this section, we are going to cover the following frequently asked questions from our clients:
When is Colorado sales tax due?
What are the Colorado sales tax thresholds?
What if a Colorado sales tax filing date falls on a weekend or holiday?
How do I file a Colorado Sales Tax Return?
What happens if I file or pay my sales tax return late?
Does the Colorado Department of Revenue offer a discount for filing on time?
By the time you finish reading this, you will feel confident enough to file and pay your Colorado sales tax.
The frequency at which you file and pay sales tax in Colorado depends on the volume of your sales. Generally, the more sales you make, the more frequently you'll need to file.
If a due date falls on a weekend or a holiday, the deadline is extended to the next business day.
You can file a Colorado sales tax return online using the Colorado Department of Revenue's Revenue Online service. This portal allows you to file returns, make payments, and manage your account online.
Check out this video to see how to file a sales tax return online:
If a business neglects or refuses to file a sales tax return for any period for which the retailer has an open sales tax account, the Department will estimate the tax due based upon the best available information. Yikes!
If a business files a late return, doesn't pay the tax by the due date, or doesn't account for all tax due, fines will be assessed. The penalty is imposed at a rate of 10% of the unpaid tax, plus an additional 0.5% for each month the tax remains unpaid, not to exceed a total of 18%. Additional penalties may be imposed for negligence or fraud.
Interest accrues on any late payment of tax from the original due date of the tax to the date the tax is paid. The rate of interest accrual depends on the calendar year(s) over which the deficiency continues. More information about fines can be found here in section 7.
Colorado allows a small discount to merchants to compensate them for the work required to collect the tax. The state permits businesses to retain 3.33% of the sales tax they collect as long as the return is filed timely and the tax is paid in full.
No, Colorado does not have a sales tax holiday. Boo. :(
Because Colorado isn't an SST member, it doesn't necessarily conform to the simplifications and uniform regulations set forth by the SSUTA. Therefore, sales tax compliance might be more complex in Colorado than in member states. Businesses operating in Colorado need to adhere to the state's specific sales tax laws and regulations.
Receiving a sales tax audit notice from the Colorado Department of Revenue can indeed be intimidating, but it's important not to panic. Audits are a regular part of business operations, and there are several steps you can take to navigate the process smoothly.
1. Review the Notice: First, thoroughly read the notice you received. It should provide you with details about the audit, including the tax period in question and the nature of the audit.
2. Get Organized: Next, gather your business records for the tax period in question. This could include sales receipts, exemption certificates, purchase records, and any other relevant documentation. Proper record-keeping can greatly ease the audit process.
3. Consult a Professional: Consider consulting with a tax professional or an attorney who specializes in tax law. They can help you understand the process, your rights, and how to respond appropriately. They can also communicate with the Department of Revenue on your behalf if needed.
4. Respond Timely: Respond to the audit notice in a timely manner. Ignoring the notice will not make it go away and could lead to penalties. If you need more time to gather your records, you can request an extension.
5. Cooperate with the Auditor: Once the audit begins, it's important to cooperate with the auditor. This doesn't mean you can't ask questions or seek clarification. Remember, the auditor is doing their job, and being cooperative and professional can help the process go more smoothly.
Remember, an audit notice doesn't necessarily mean you've done something wrong. It's often a routine check to ensure compliance with tax laws. Stay calm, be thorough, and don't hesitate to seek professional advice.
In the complex world of sales tax regulations, small business owners can easily stumble into common pitfalls. Especially when dealing with Colorado's specific rules and requirements, it's not unusual to make a mistake when filing sales tax returns. But don't worry – these errors are often avoidable with the right knowledge and preparation.
Next, we'll share five practical tips to help you steer clear of common mistakes when filing your Colorado sales tax returns. With these insights, you can ensure a smoother, more accurate filing process, ultimately saving time, reducing stress, and keeping your business in good standing with the Colorado Department of Revenue.
Ensure you know your filing frequency (monthly, quarterly, annually) and stick to the schedule. Late filings can result in penalties and interest charges. If a due date falls on a weekend or holiday, the deadline is extended to the next business day.
Colorado is a destination-based state, meaning you charge sales tax based on the buyer's location. Be sure to account for the correct combined rate, which includes state, county, city, and special district taxes. Using automated sales tax calculation software can help reduce errors.
Maintain thorough records of all taxable and non-taxable sales, exemption certificates, and tax payments. This not only simplifies the filing process but also prepares you in case of an audit.
If you hold a sales tax license in Colorado but didn't make any taxable sales during a filing period, you're still required to file a "zero return." Neglecting to file a return, even if no tax is owed, can result in fines.
Sales tax laws can be complicated and ever-changing. Don't hesitate to reach out to a tax professional, especially if your business is growing, selling new products, or expanding into new locations. They can help ensure your business remains compliant with all applicable tax laws and regulations.
|
Alaska Sales Tax Guide (N/A) |
||||
|
Montana Sales Tax Guide (NA) |
||||
|
Oregon Sales Tax Guide (N/A) |
||||
|
Delaware Sales Tax Guide (N/A) |
||||
|
New Hampshire Sales Tax Guide (NA) |
||||
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.
Enzo: November 10, 2023
As a small business owner, managing sales tax can be a complex and time-consuming task. However, with the updated integration between Xero and...
Enzo: September 05, 2023
Running a startup can be simultaneously thrilling and terrifying. The rush of bringing novel ideas to life, the challenge of building a team from...
Enzo: August 31, 2023
Understanding the different accounting methods is essential for any startup founder. By gaining knowledge about these methods, individuals can make...
