Understanding Colorado Sales and Use Taxes
Understanding and complying with the sales tax requirements in the states in which you do business is absolutely essential. More states are taxing services, as well as retail sales, so no business owner can afford to be in the dark. In addition, you may find that you are liable for use taxes for products purchased out of state. This article answers some of the basic questions regarding sales tax in Colorado.
In Colorado, the state sales and use taxes are imposed at the rate of 2.9 percent of the tax base. However, Colorado has substantial additional local sales and use taxes. The retail sales tax applies to the gross receipts from all of the following activities:
- all retail sales of tangible personal property
- retail sales involving exchange of property
- intrastate telephone and telegraph service
- gas and electric service to consumers, and sales of steam
- meals and cover charges furnished at any place where meals are regularly served to the public
- charges for rooms or accommodations
Colorado Has Many Tax Exempt Items
Colorado includes many specific items that are exempt from sales tax. Examples of exempt items are grocery store food and prescription medication. You'll want to check and see if you or any items you sell are exempt from the sales tax.
Charities Are Exempt from Paying Tax
In Colorado there is no sales tax on articles sold to charitable organizations in the conduct of their regular charitable functions and activities. Colorado requires the following information to be submitted to the state to determine whether an organization qualifies for exemption:
- a copy of the organization's federal exemption letter
- the organization's financial statement showing the source of funds and its expenditures
Seller Must Collect and Remit Sales Tax
In Colorado a retailer is responsible for collecting and remitting the sales tax. The retailer has the burden of showing that a sale is exempt from tax. The retailer must have sufficient records to demonstrate the validity of a claimed exempt sale. The tax is imposed on the purchaser, but if the transaction involves a licensed vendor it is the vendor's duty to add the tax to the sales price and remit the tax to the state. If no licensed vendor is involved in the transaction or the vendor fails to collect the tax, the purchaser must pay the tax directly to the Department of Revenue. Also, if the vendor fails to collect the tax from the purchaser, the Department of Revenue may assess the tax due against the vendor or the purchaser at its option.
Absorbing the tax — using a "no sales tax" advertising strategy to drum up business. A Colorado retailer or agent may not advertise that the retailer will assume or absorb any part of the sales or use tax due. This includes advertising that the tax will not be added to the selling price of the property sold, or that the tax, having been added to the selling price, will be refunded.
Every Retailer Must Have Tax Permit
Every retailer must obtain a license biennially for each place of business from the Colorado State Treasurer. The initial license fee is $16 plus a one-time-only $50 deposit that is allowed as a credit against the sales tax to be remitted. An additional $16 fee must be paid every two years.
In Colorado, the right to a continuous possession or use of tangible personal property for three years or less under a lease or contract is exempt from the sales tax. It is exempt if the lessor has paid a sales or use tax on such property at the time of its acquisition. However, a lessor of tangible personal property that will be leased for three years or less may acquire the property without payment of the sales tax if the lessor agrees to collect sales tax on all lease payments. When the lease is for more than three years and such transfer would be taxable if it were an outright sale, tax must be paid on the lease or rental payments received. The state sales tax rate is 3 percent of monthly payments made.
Colorado Provides Resale Exemptions
When a purchaser states that a purchase is for resale, the seller must establish that the sale is tax-exempt and must keep records to that effect. It is the seller's responsibility to collect the tax unless the seller receives a satisfactory proof that the sale is exempt. Colorado requires exemption certificates, but does not prescribe the form of the certificates. As an alternative, Colorado also accepts the "multistate" exemption certificate that includes the following information:
- the name and address of the purchaser
- the name of the seller to whom it is given
- a reason for the exemption
- an authorized signature
- the purchaser's license or registration number
- the date
- the good faith of the purchaser
When a purchaser states that a purchase is for resale, the seller must establish that the sale is tax exempt and must keep records to that effect. It is the seller's duty to collect the tax unless the seller receives satisfactory proof that the sale is exempt.
Colorado Tacitly Permits Blanket Resale Certificate
The state of Colorado does not specifically address whether blanket certificates can be used for multiple purchases. A blanket certificate will relieve the burden of executing a separate certificate for each individual tax-exempt purchase as long as there is no significant change in the operations. A blanket certificate describes the general nature of the property purchased for resale and usually remains in force until revoked in writing. As long as there is no prescribed form, if the seller has all the information that is required for a resale certificate, that should satisfy the Colorado Department of Revenue.
Physical Presence Required To Be Taxed In Colorado
Colorado has a statute that specifically taxes out-of-state mail order and catalogue sellers. However, you will be responsible for paying this tax only if you have physical presence within Colorado. To determine if you have physical presence, ask yourself the following:
- Do I have retail facilities, a warehouse or any office space in Colorado? Maintaining retail or warehouse facilities will give you physical presence. Also, having an office for employees, even for business activities unrelated to mail order sales, will give you physical presence.
- Do my employees or I enter Colorado for purposes of taking and transmitting orders from Colorado? If your employee or independent contractor goes into Colorado to take or transmit orders your business may have physical presence in Colorado. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence.
- Do my delivery vehicles frequently enter Colorado for purposes of delivering property? Frequent deliveries in Colorado by your trucks will give you physical presence in Colorado.
File Claim to Obtain Tax Refund
When a seller disputes a purchaser's claim that a sale is exempt from tax, the purchaser must pay the tax to the seller and then apply to Colorado for a refund of the tax paid. Applications for refund must be made within 60 days after the date of purchase, be supported by the purchaser's affidavit, be accompanied by the original invoice or sales receipt issued by the seller. A refund is also allowed when the person establishes that the tax was paid by another person and not refunded to that person and that the person entitled to the exemption paid or reimbursed the purchaser for tax paid. The application for the refund must be made within three years after the date of purchase.
Colorado's Use Tax Taxes Out-of-State Purchases Used In-State
The Colorado use tax applies to the privilege of storing, using, or consuming tangible personal property in Colorado that has been purchased at retail and is supplementary to the sales tax. The sales tax and use tax are complementary taxes — the use tax is not imposed on sales that are subject to the sales tax.
Responsibility for collecting use tax. In Colorado the use tax is imposed on persons storing, using, or consuming in Colorado tangible personal property purchased at retail. The obligation for payment of the tax is on the user whether the tax is called a "sales tax" or a "use tax."
Purchases from out-of-state vendors
A use tax credit is allowed for sales or use taxes paid to another state that allows a similar credit for taxes paid to Colorado.