If you make sales to customers in Colorado, either from within the state or from outside, you need to understand the laws concerning the collection and remittance of Colorado state sales tax. Just as is true elsewhere, you don’t have an obligation to collect and remit sales tax on purchases made by Colorado customers unless your business has a significant presence, or nexus, in the state. What can vary from one state to another, though, are the particular conditions that constitute a nexus, along with the specific items and services that are subject to sales tax.
The state sales tax rate in Colorado is 2.9%, which is the lowest for any state in the country, aside from the five that have no state sales tax at all. However, Colorado allows localities broad discretion when it comes to imposing their own sales tax, resulting in combined rates that are as high as 11.2% in some places.
Local sales tax can be imposed in Colorado at the levels of city, county, school, transportation, and special purpose district, or SPD. This is further complicated by the fact that some Colorado cities are considered “home rule”, while others are “statutory.” Statutory cities generally follow the guidelines and rates for sales tax laid out by the state, but home rule cities may or may not do the same.
If you operate a business with a physical location that you sell from in Colorado, you will have to collect taxes at the rate applicable at your location. Some of these may be state-administered, while others may be administered by the local governments, and you may be required to register locally as well as at the state level before you can begin making sales and collecting taxes.
If you are a remote seller with an obligation to collect sales tax from your Colorado customers, you’ll have to collect at the rate that’s in force at the destination of the product purchased. A list of local tax rates is available here, and you will also have to determine if you need to register with any localities in addition to registering with the state Department of Revenue.
You are not responsible for collecting and remitting sales tax on purchases made by customers in Colorado unless you have a nexus there. This is generally defined as a significant presence, and it could be created by:
Storing goods in a warehouse in Colorado also creates a nexus, and Amazon has already begun collecting sales tax from Colorado customers, although its first fulfillment center in the state won’t open until late 2017. The move to begin collection was prompted by a law the state passed in 2010 requiring all out-of-state retailers who make more than $100,000 in sales annually to Colorado customers to inform those customers of their obligations regarding use tax since the state can’t actually require companies with no nexus in the state to collect sales tax.
Sales, leases and rentals of tangible personal property are subject to Colorado state sales tax. Most services are not taxed at the state level, although some localities may impose their own sales taxes on services. Items exempt from sales tax include groceries meant to be prepared and consumed at home, prescription drugs, and some medical equipment. Over the counter medications are not exempt, nor are prepared foods and non-essential food items like soft drinks and candy.
While these regulations are in force at the state level, other jurisdictions are free to impose their own taxes, and they may or may not maintain the same exemptions. In some areas, more items like farm equipment are exempt, and in others, even food is subject to local sales tax rates.
If you plan to make taxable sales to Colorado customers, you must register with the state Department of Revenue and receive a Colorado Account Number. In addition, you may also need to register with individual municipalities, depending on the location of your business and whether you ship goods to certain parts of the state. You can register online, and a $50 deposit is required for in-state businesses. This deposit will be returned after you have collected and remitted $50 in sales tax.
The frequency with which you will need to file your Colorado sales tax returns will depend on the amount of tax you collect per month. Companies with less than $15 in average monthly tax liability may file annually, while those with between $15 and $300 must file quarterly. If you collect more than $300 per month in sales tax on average, you must file and pay monthly, and companies that pay more than $75,000 annually must pay using electronic funds transfer.
The deadline for annual sales tax filing is January 20th of the following year. If you file quarterly, due dates are as follows:
|January – March (Q1)||April 20th|
|April – June (Q2)||July 20th|
|July – September (Q3)||October 20th|
|October – December (Q4)||January 20th|
If you file monthly, your returns and payments will be due on the 20th of the following month.
Even if you don’t collect any sales tax over a given period, you must file a zero return to avoid penalties. If you do file or pay late, a 10% penalty will be assessed immediately, followed by an additional 0.5% penalty for every subsequent month you’re late. There are also interest charges that will be added on, and the particular rate varies considerably from year to year, although it’s generally between 3% and 10%.
No matter where your company is based or how many states you do business in, it’s essential that you abide by the applicable sales tax laws in all areas. That can be a particular challenge in a state like Colorado, where there are so many types of local taxes, some of which are collected and redistributed by the state and others of which are not. These types of regulations make it difficult to determine when you need to collect sales tax and at what rate, and so it’s good to have a tool to help you with these types of assessments.
TaxTools is just such a system, and it provides a comprehensive suite of features designed to streamline your sales tax collection and reporting, whether you operate solely in Colorado or you ship to customers in multiple states. TaxTools integrates smoothly with all eCommerce platforms, so you don’t have to change anything about the way you currently do business. Once this system is in place, however, you won’t have to worry about missing a filing deadline or miscalculating the proper sales tax rate, as TaxTools will handle all of that for you.
So if you’re ready to see how TaxTools can give you peace of mind as you try to navigate the complexities of state sales tax regulations, click here to learn more or to sign up for a free trial.