Nestled in the majestic Rocky Mountains, Colorado’s stunning natural beauty and business-friendly policies make it a premier destination for entrepreneurs. However, successfully launching and running an enterprise here requires grappling with the complexities of the state’s sales tax codes. For both existing and aspiring business owners, having a handle on sales tax in Colorado is crucial for smooth sailing.
This guide breaks down everything you need to know about Colorado’s sales tax, from determining the right sales tax rates to understanding exemptions and filing processes. By the end of this comprehensive guide, you’ll be equipped to handle Colorado’s sales tax with confidence and ease.
Sales Tax Nexus in Colorado
It is important to understand that Colorado is a
home-rule state.
This means that many of its cities and counties have the authority to set their own sales tax rates and regulations independently of the state’s rules. As of January 1, 2024, Colorado has 66 home-rule cities and two home-rule counties (Denver County and Bloomfield County). As a result, businesses operating in multiple home-rule jurisdictions within the state may find it challenging to navigate these varied regulations. Moreover, when a business establishes either a physical or economic nexus, it is required to collect sales tax in Colorado.
Physical Nexus
A physical nexus means having a significant physical presence or engaging in enough activities within a state to require the collection and payment of sales tax. The factors that determine a physical nexus in Colorado include:
- Physical Location: This includes having an office, a place for distribution, sales, or showcasing products, a warehouse or storage facility, or any other place where you conduct business.
- Inventory in the State: This covers situations where you store your products within the state, even if it’s done through a third-party fulfillment center or 3PL (like Amazon FBA) or an online marketplace.
- Employees, independent contractors, agents, or other representatives operating on your behalf.
- Presence at Trade Show: If you’re selling at a special event, you need to collect and pay sales taxes to the state. You can either pay these taxes directly to the Department or to the event organizer if they have a special event license. This option is available even if you have your own special event license. Before the event, make sure to get a special event license from the Department. Also, check with the event organizer or local government for any additional local sales tax rules.
Economic Nexus
States have established regulations to collect sales tax from out-of-state sellers who meet certain revenue and/or transaction thresholds. This rule is known as economic nexus.
Beginning December 1, 2018, the threshold for economic nexus in Colorado is $100,000 in gross revenue in the previous or current calendar year’s sales.
While the nexus criteria mentioned above generally apply to most businesses, additional methods exist for establishing sales tax nexus. To access a comprehensive list of these rules, please refer to the governing laws for sales tax nexus requirements in Colorado.
Colorado Sales Tax on Goods and Services
One of the first things you need to know is whether the goods you’re selling or services you’re offering are taxable in Colorado.
Tangible Products
Almost all goods are taxable in Colorado, including:
- Cosmetics
- Electronics
- Clothing
- Furniture
- Jewelry
- Home Goods
- Personal Hygiene – Items such as soaps, paper products, and grooming items are taxable
The
goods that are exempt from sales tax are:
- Groceries – Most food for home consumption is exempt from state sales tax. However, prepared food, dietary supplements, soft drinks, and liquor are examples of grocery items that are taxable. Additionally, while food items paid for with funds issued by the federal Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) or with food stamps are tax-exempt, any non-food grocery items purchased under these programs are still subject to sales tax. Finally, grocers must consider factors like the temperature at which items are sold to determine if they qualify as tax-exempt “food for home consumption” under Colorado law.
- Feminine Hygiene Products – Products such as tampons, menstrual cups and sanitary napkins, pantiliners, etc. are exempt from sales tax in Colorado.
- Diapers – In Colorado, as of January 1, 2023, incontinence products and diapers are not subject to state sales and use taxes. This exemption includes various types of diapers and incontinence pads but does not extend to items like clothing or general hygiene products.
- Prescription Medications – Prescription and nonprescription drugs, certain medical supplies, and durable medical equipment prescribed by a licensed practitioner are exempt from state sales tax. However, vitamins, dietary supplements, and other non-prescription medicines are taxable.
- Agricultural Supplies – Seeds, fertilizers, and machinery used directly in farming are exempt from sales tax.
- School-related items – Sales by schools and student organizations are exempt from state sales tax if proceeds benefit the school or approved student groups.
Services
In Colorado, the majority of service-based transactions, such as professional services, advertising, and cleaning services, are
not subject to sales tax.
However, there are specific situations where certain services are taxable. For instance:
- Telephone and telegraph services
- Room and accommodation services
- Gas and electric services
- Certain utility services
Software-As-A-Service (SaaS)/Digital Products
SaaS is
not taxable in the state of Colorado.
Digital products (i.e., ebooks, downloadable video content, mobile apps) are
taxable.
Shipping/Handling
Shipping and handling charges in Colorado are not taxable as long as both are separately stated in the customer invoice. However, retailers must collect a
$0.27 Retail Delivery Fee on all deliveries by motor vehicle that include at least one item of taxable tangible personal property. This fee applies to each sale and is in addition to any other state sales or use taxes.
Sales Tax Permits and Licenses in Colorado
Now that you’ve got a handle on when sales tax nexus applies and which products are taxable in Colorado, the next important step is getting your Colorado Seller’s Permit, also known as a sales tax permit. Home rule refers to the authority granted to local jurisdictions, like cities and counties, to enact and administer their own sales and use taxes independently of state tax laws.
Colorado simplified sales tax permit regulations for remote sellers. Previously, businesses without a physical presence had to obtain separate licenses in each of Colorado’s home-rule cities. From July 1, 2022, these businesses can register statewide, avoiding the need for multiple local licenses with full effect on July 1, 2023.
Seller’s Permit
The registration process varies depending on the location of the business’s incorporation.
In-state businesses
- Standard Retail License (Sales Tax License) – for businesses that make retail sales in Colorado.
- Single Special Event License – for businesses with a temporary location other than their regular business location and valid for only one event with three or more vendors. This two-year license is free to all standard sales tax license holders.
- Multiple Special Event License – for businesses attending more than one special event. This two-year license is free to all standard sales tax license holders. It covers a two-year period when three or more vendors are at the event.
- Mobile Vendors – businesses 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.
Out-of-state businesses
Online applications for a Sales Tax License for out-of-state retailers are available at Revenue Online.
Ensure you have specific information on hand when registering for a seller’s permit, including, but not limited to:
- Business Identification Information (name, address, phone number, email address)
- Business Entity Structure (sole proprietorship, partnership, corporation, LLC, etc.)
- Federal Employer Identification Number (EIN or FEIN)
- Owner/Partner/Officer Information
- Business Activity Details (description of products or services sold, sales volume, date of the first sale or the expected date to start dates)
Registration fee
The
registration fee for a Colorado sales tax permit varies based on the time of application:
- $16 for January-June and $12 for July-December in the first year, and
- $8 for January-June, and $4 for July-December in the second year.
Additionally, new accounts must include a $50 deposit with the application, refundable after the business has collected and remitted $50 in state sales taxes.
Renewal
In Colorado, you can renew your sales tax permit every two years through the Renewal Application for Sales Tax License form. Applicants must pay a $16 fee, which is prorated based on the issuance date. Wholesale licenses expire on December 31st of odd-numbered years (e.g., 2023, 2025, 2027) unless revoked sooner by the CO Department of Revenue.
Resale Certificate
A resale certificate or wholesale license is a document that allows businesses to buy products without paying sales tax on them, as long as they plan to resell those items to customers, who will then pay the tax. As a seller, you can also accept resale certificates from others looking to buy for resale.
In Colorado, sellers use resale certificates to buy goods from their suppliers that they intend to resell. The issuance of the certificates is always done in good faith that the seller would report tax on the final sale of the items.
Businesses that plan to purchase items for resale without paying sales tax should obtain a Colorado sales tax account/license by completing the
CR 0100 form. If you don’t want the hassle of registering, sign up for our all-inclusive service that includes sales tax registration.
Streamlined Sales Tax (SST)
The Streamlined Sales Tax (SST) is an initiative to simplify and standardize sales tax regulations across multiple states. However, Colorado is
not a party to this program, meaning it does not follow the uniform rules and definitions established by SST but has its own sales tax regulations.
Check with the Colorado Department of Revenue for the most current information on Colorado’s participation in the Streamlined Sales Tax initiative.
Calculating and Collecting Sales Tax in Colorado
Sales Tax Computation
In Colorado, sales tax isn’t just one simple rate; it’s a combination of state and local taxes. To figure out the total sales tax for your calculation, you’ll need to add up the rates for the state, county, and city (if applicable) where your transaction occurs. Additionally, the tax rate and rules can vary significantly in home rule jurisdictions, where local governments set and administer their own sales and use taxes independently. Use TaxHero’s Colorado Sales Tax Calculator to compute for sales tax.
Here’s an example. Suppose an out-of-state seller satisfies the economic nexus criteria in California and sells to a customer in the home-rule city of Denver, CO, with a ZIP code of 80201. In that case, the seller has to charge the customer a total sales tax, which can be broken down as follows:
 |
SALES TAX FORMULA |
RATE |
| State: |
Colorado |
2.90% |
| County: |
Denver |
0.00% |
| District: |
Seventh District |
1.10% |
| City: |
Denver |
4.81% |
| Combined Sales Tax Rate = |
8.81%* |
|
*includes a fixed-amount Retail Delivery Fee
Origin-based vs. Destination-based
When making in-state sales, it is important to determine if you are located in an origin-based or destination-based state to figure out what rate to charge for sales tax.
Colorado is a destination-based state, meaning sales tax is determined based on the buyer’s location. That means for a Colorado-based seller, sales tax is generally based on the location of the buyer when selling within the state.
For out-of-state or remote sellers, the sales tax rate is always determined by the buyer’s location. For instance, if you’re selling a product from California to a customer in Denver, CO, where you have nexus, you’d apply Denver’s sales tax rate to that sale.
To make life easier, consider using sales tax software or consulting a tax professional, like TaxHero, to ensure accurate tax calculations and collections. Understanding these tax rules helps you stay compliant, whether you’re in-state or out-of-state.
Filing and Remitting Sales Tax Returns in Colorado
The next step after collection is filing and remitting your Colorado sales tax returns. Filing and remittance can vary in frequency, typically monthly, quarterly, or annually.
- Annual Filing: If you collect sales tax of $15 or less per month
- Quarterly Filing: If you collect sales tax of between $15 and $300 per month
- Monthly Filing: If you collect sales tax of more than $300 per month
It’s crucial to keep accurate records of your sales and tax collections and adhere to the filing schedule set by the state to remain compliant with Colorado sales tax regulations. Meanwhile, in self-collecting home rule cities, different filing requirements and guidelines may apply. For specific information on these jurisdictions, you may contact the respective local cities directly.
Due Dates
In Colorado, the due date falls on the 20th day of the following month. For instance, sales tax collected in January is due by February 20th for monthly filers.
However, if this day is a holiday, weekend, or in the rare occurrence of a natural disaster, the deadline is typically extended to the next business day. For instance, if you’re a monthly filer and filing sales tax for the month of April, and the May 20th deadline falls on a holiday or weekend, you’ll have until May 21st, the following business day, to submit.
Filing Sales Tax Returns
To file your sales tax return for Colorado, a few options are available:
- File online through the Revenue Online portal.
- File by mail – Complete DR 0100 and mail it to the Colorado Department of Revenue.
- File with TaxHero – Let TaxHero take care of it so you don’t have to worry about missing a payment or return.
Timely Filing Discount
Some states offer a discount to businesses for collecting, filing, and remitting sales tax on time as an incentive to process sales taxes promptly. Colorado’s timely filing discount allows filers to retain 4.00% of their sales tax due or up to $1,000 per filing period. However, businesses with sales tax collections over $1,000,000 are not eligible for the filing discount.
Sales Tax Holiday
Currently, for 2023-2024, there are no planned sales tax holidays in Colorado.
Colorado Sales Tax Penalties
Like in most states, sales tax is a big part of how Colorado generates revenue. Thus, maintaining compliance with sales tax regulations is of utmost importance. Failure to do so can lead to consequences and sales tax penalties. Therefore, it is crucial always to ensure you are up-to-date in filing, collecting, and remitting sales tax to the state.
Here are the specific penalties for non-compliance with sales tax regulations in Colorado:
- Civil penalties amounting to 10% of the unpaid tax, plus an additional 0.5% for each month the tax remains unpaid, up to a maximum total penalty of 18%;
- On the criminal side, offenses can be classified as either misdemeanors or Class 5 Felonies, depending on the severity and specific circumstances.
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