WHICH GOODS AND SERVICES ARE TAXABLE?
Determining whether or not the products or services your company sells are taxable in Colorado is the first step in sales tax compliance.
Traditional Goods or Services
Goods that are subject to sales tax in Colorado include physical property, like furniture, home appliances, and motor vehicles
The purchase of groceries, prescription medicine or gasoline are tax-exempt.
Some services in Colorado are subject to sales tax. For a detailed list of taxable services view this webpage from the Colorado Department of Revenue website.
The Colorado Department of Revenue has also published a comprehensive guide to sales tax exemptions and exclusions.
Digital Goods or Services
A digital good or service is anything electronically delivered, such as an album downloaded from iTunes or a film purchased from Amazon.
Colorado requires businesses to collect sales tax on the sale of digital goods or services.
HOW TO REGISTER FOR COLORADO SALES TAX
If you have determined that you need to charge sales tax on some or all of the goods and services your business sells, your next step is to register for a seller's permit. This allows your business to collect sales tax on behalf of your local and state governments.
In order to register, you will need the following information:
- Personal identification information
- Business identification information
- Business entity type
- Products that you sell
Colorado requires that any seller with a sales tax permit file a sales tax return on your due date even if you don’t have any sales tax to report or pay.
Save Money with a Resale Certificate
With a resale certificate, also known as a reseller's permit, your business does not have to pay sales tax when purchasing goods for resale.
COLLECTING SALES TAX
After getting your seller's permit and launching your business, you will need to determine how much sales tax you need to charge different customers. To avoid fines and the risk of costly audits, it's important for business owners to collect the correct rate of sales tax.
When calculating sales tax, you'll need to consider the following kinds of sales:
- Store Sales
- Shipping In-State
- Out-of-State Sales
For traditional business owners selling goods or services on site, calculating sales tax is easy: all sales are taxed at the rate based on the location of the store.
Here's an example of what this scenario looks like:
Mary owns and manages a bookstore in Fort Collins, Colorado. Since books are taxable in the state of Colorado, Mary charges her customers a flat-rate sales tax of 7.400% on all sales. This includes Colorado’s sales tax rate of 2.9%, Larimer County’s sales tax rate of 0.650%, and Fort Collins’ local district tax rate of 3.850%.
When shipping to customers in the state of Colorado, your tax rate will depend upon the county and city tax districts that your business and customer share in common. This concept is illustrated by the three scenarios below:
Shipping to a Customer in your City
When shipping to customers in the same city and county as your business, you’ll be responsible for collecting state, county and city sales tax.
Shipping to a Customer in your County
When shipping to customers in a different city, but within the same county as your business, you’ll be responsible for collecting state and county sales tax. You will not be responsible for collecting city sales tax on behalf of your customers.
Shipping to a Customer Outside your City and County
When shipping to customers outside of your business's city and county, you will only need to collect sales tax at Colorado's base tax rate. You will not be responsible for collecting county or city sales tax on behalf of your customers.
Colorado businesses only need to pay sales tax on out-of-state sales if they have nexus in other states. Nexus means that the business has a physical presence in another state.
Common types of nexus include:
- A physical location, such as an office, store, or warehouse
- An employee who works remotely or who is a traveling sales representative
- A marketing affiliate
- Drop-shipping from a third party seller.
- A temporary physical location, including festival and fair booths.
FILE YOUR SALES TAX RETURN
Now that you’ve registered for your Colorado seller's permit and know how to charge the right amount of sales tax to all of your customers, you are all set to file your sales tax return. Just be sure to keep up with all filing deadlines to avoid penalties and fines.
Recommended: Hiring a business accountant can help your business file tax returns as well as issue payroll and manage bookkeeping. Schedule a consultation with a business accountant today to save thousands of dollars on your taxes.
How to File
Colorado requires businesses to file sales tax returns and submit sales tax payments online.
Register for Local Sales Tax
In most states, businesses pay all sales tax collections to the state, and any district level taxes are distributed to the counties and cities.
Colorado does not operate like most other states. In Colorado, counties and cities may elect to have businesses pay local sales taxes to a local governing body. Such counties and cities are known as “Self Collecting” jurisdictions. See a full list of "Self Collecting" jurisdictions in Colorado at the Colorado Department of Revenue sales tax spreadsheet.
To further explain filing and collection of sales tax in a home rule jurisdiction, consider the following illustrations:
How Often Should You File?
- Annual filing: If your business collects less than $15.00 in sales tax per month then your business should file returns on an annual basis.
- Quarterly filing: If your business collects between $15.00 and $300.00 in sales tax per month then your business should file returns on a quarterly basis.
- Monthly filing: If your business collects more than $300.00 in sales tax per month then your business should file returns on a monthly basis.
Note: Colorado requires you to file a sales tax return even if you have no sales tax to report.
All Colorado sales tax return deadlines fall on the 20th day of the month, unless it is a weekend or federal holiday, in which case the deadline is moved back to the next business day. Below is a list of this year’s filing deadlines.
Annual filing: January 22, 2020
- Q1 (Jan. - Mar.): April 20
- Q2 (April - June): July 20
- Q3 (July - Sept.): October 20
- Q4 (Oct. - Dec.): January 22
Monthly filing: The 20th of the following month, or the next business day, e.g. April 20 for the month of March, or May 22 for the month of April.
Penalties for Late Filing
Colorado charges 10% of sales tax due, plus 0.5% per month. This penalty increases up to a maximum of 18.00% of total tax due.
Colorado Helpful Resources
Colorado Sales Tax Helpline: