Colorado Sales Tax
Colorado Sales Tax At a Glance
State rate: 2.9%
Maximum combined rate: 11.2%
Tax Holidays: None
Governing Body: Colorado Department of Revenue
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 tax collected to the State of Colorado.
Colorado Sales Tax Rates
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. A combination of local and county sales taxes are collected in addition to the state rate.
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 for a tax license 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 for a tax license.
While Colorado is a destination-based sales tax state, a new law passed in 2019 added nuance to these collection requirements, to which many small businesses remained exempt into 2022. Retail sales are now sourced according to where the buyer takes possession of the item. That means if they buy in person, they pay the retail sales rate of that location. If the item is delivered to them or to someone else as a gift, the sales tax rate is charged based on the final destination.
Sales Tax Nexus Regulations in Colorado
Small businesses are not responsible for collecting and remitting sales tax on purchases made by customers in Colorado unless they have a nexus there. This is generally defined as a significant presence, and it could be created by:
- a physical place of business in the state, such as a storefront or office
- the presence of employees who work in the state remotely
- an independent contractor who performs work for the company in Colorado
- use of a contract carrier, rather than a common carrier, to deliver goods to Colorado customers
Storing goods in a warehouse in Colorado also creates a nexus, and that includes Amazon fulfillment centers. (Amazon now collects sales tax in all applicable states, including Colorado.)
The move to begin collection from out-of-state sellers 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 collect and remit sales tax. This law was originally passed to require reporting but was amended following the Wayfair decision to establish economic nexus for the purposes of collecting sales tax.
What Is Taxable?
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.
Registering to Collect Colorado State Sales Tax
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 for a tax license, 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 collecting and remitting $50 in sales tax.
Filing Deadlines and Penalties
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%.
The Colorado service fee allowing retailers to retain a percentage of sales tax collected was eliminated on January 1, 2022 if sales exceeded $1 million. The return for smaller businesses is limited to $1000.
Colorado Sales Tax Software
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 sign up for a free trial.
Last updated January 2023