Business Guide to Sales Tax in Colorado

So, you need to know about sales tax in The Centennial State. Look no further!

Whether you’ve fully set up shop in Colorado, or simply ship there once in a while, it’s important you know whether your business is liable to their sales taxes. This guide will tell you everything you need to know, plus direct you to the right places for handling any sales tax responsibility you may have.

What’s taxable in Colorado?

Tangible products

Tangible products, as you might guess, are physical items. Colorado taxes most tangible products, but there can be exemptions! To be absolutely clear about which products are subject to sales tax, and which are exempt, check Colorado Department of Revenue.

Digital products

Digital products are goods that are delivered or accessed electronically, usually through the internet. Media streaming services and eBooks usually fall into this category, too, but rules can vary. Check Colorado Department of Revenue website to be sure.

Do you have nexus in Colorado?

The word “nexus” refers to a commercial connection in the state. Nexus determines the following questions for a state tax agency: Do you do business here, what kind, and how much? And when you do have nexus, that means you’re obligated to collect tax on your sales there.

So the first question for you to answer is whether you have nexus in Colorado.

You probably have nexus in Colorado if any of the following points describe your business:

• A physical presence in Colorado: a store, an office, a warehouse or distribution center, storage space, you, an employee, a representative, etc.

• A significant amount of sales in Colorado within twelve months.

• This is called an economic nexus, a sales tax nexus determined by economic activity, i.e. - the amount of sales you make in a particular state. Any kind of economic activity could trigger the nexus, once your total sales reach a certain threshold amount.

The threshold in Colorado is $100,000 in annual sales. To learn more about how this works, check out the Ultimate Guide to US Economic Nexus.

How to register for sales tax in Colorado

Okay, so you have nexus! Now what?

The next step in complying with Colorado sales tax is to register for a sales tax permit. It’s actually illegal to collect tax without a permit. So to get all your ducks in a row, start with tax registration first.

Remote sellers can register online for sales tax in Colorado through Revenue Online and Colorado Sales and Use Tax System (SUTS), an online portal that provides various tax services. This portal is also where you’ll file and pay your tax returns. More on that later!

The first step is to register for a sales tax license and receive a tax number. This is a simple process! But before you begin, have this information handy:

• Your Social Security number (if registering as a sole proprietor with no employees)
• Your Employer Identification Number (EIN)
• North American Industry Classification System number. Each number is a 2-6 digit code. Find yours in the NAICS directory.
• The date of your first sale in Colorado

Apply for a sales tax license in Colorado

1. Go to the Revenue Online application for out-of-state retailers. Once you pass the instructions, you must confirm that you are indeed an out-of-state business.

2. Enter your personal information and physical address. At the bottom of the page, you’ll need to verify your address with the system's registry.

3. You must log at least one business owner in the system’s records. Click “+ Add a Record” at the bottom of the screen.

Enter all these fields you see below. If you’re done, click “Next.” If you’d like to add a second owner, repeat the process by clicking “+ Add a Record” again.

4. Next provide the date of your first taxable sale in Colorado, as well as your NAICS code. If needed, you can search for your NAICS code directly on the page! A box will appear, where you can search by keyword. Then select the field most relevant to your business. Here’s an example with the keyword “software.”

5. After yet again providing contact details, you must create Login Information for your new Revenue Online tax account in Colorado.

6. Next you must select all locations you expect to sell to in Colorado. This determines where you must eventually file taxes, sometimes in multiple local jurisdictions.

It’s possible to select all locations at once by clicking “Select All” – but only do so if you plan to conduct business throughout the entire state. Otherwise you can search and filter for specific cities and counties.

7. Colorado charges a fee for the license application. You must agree to pay the fee and to file in each location you’ve selected in step 6.

8. Click “Submit” and you’re done! You should receive a confirmation right there on the screen and via email.

The website doesn’t state how long you should expect to wait, but if you have any questions, simply login and contact customer support.

Once your application is reviewed and approved, you should receive a seller’s license and a business tax ID, also known as a Colorado Account Number (CAN). The CAN is listed on your sales tax license as the first 8 digits of the Use Account Number, in the upper left portion.

You’ll also be assigned a tax filing frequency: monthly, quarterly, or annually.

How to collect sales tax in Colorado

Now it’s time to tackle the intricate stuff! Tax rates can vary based on the location of your business and the location of your customer, plus the levels of sales tax that apply in those specific locations.

The state-wide sales tax in Colorado is 2.9%.

There are additional levels of sales tax at local jurisdictions, too.

Check out Quaderno's Sales Tax Calculatorsee your product's tax rate, amount, and final price in Colorado.

Colorado has a destination-based sales tax system, so you have to pay attention to the varying tax rates across the state. Charge the tax rate of the buyer’s address, as that’s the destination of your product or service.

• Important to note for remote sellers: While this is generally true for Colorado, some state have peculiar rules about tax rates for remote sellers. Contact the state’s Department of Revenue to be sure.

Sales tax on shipping charges in Colorado

Colorado does apply sales tax to shipping costs. The rule of thumb is that if what you’re selling is subject to tax, then the shipping charges are also subject to tax. (And vice versa is true: If the item being shipped is not subject to sales tax, neither are the shipping charges.)

If you happen to be shipping products that are both taxable and nontaxable, then shipping charges for the entire shipment are subject to tax.

How to file taxes in Colorado

Sales and taxes should be reported and filed using US dollars. If you’ve made any transactions in Colorado in a different currency, be sure to convert those to USD using official currency exchange rates.

When tax time rolls around in Colorado, whether it’s monthly or annually, you must do three things:

1. Calculate how much sales tax you owe
2. File a sales tax return
3. Make a payment

Before you get started, you should collect all the information about your taxable sales in Colorado during the previous quarter. The tax website suggests having these pieces ready:

• total sales and income
• total purchases and expenses

You can file online in Revenue Online. You can log in here.

Once submitted, you should receive confirmation and a Filing ID, which is a unique identifier for this particular tax return. You can keep this for your records.

How to pay sales tax in Colorado

Tax payments must be made electronically and in US dollars. You can pay directly at the time of filing through your Revenue Online account.

Colorado offers a few different payment methods. Please note that most methods charge a service fee and take a few days to process payment!

• Debit or credit card
• E-check
• EFT (ACH Debit or Credit)

When to file taxes in Colorado

Colorado sales tax returns are due on the 20th day of the month following the reporting period. If the due date falls on a weekend or holiday, then your sales tax filing is generally due the next business day.

When you register for sales tax, Colorado will assign you a certain filing frequency which determines your reporting period. You’ll be asked to file and pay sales tax either monthly, quarterly, or annually.

Usually the frequency they choose is based on the amount of sales tax you collect from buyers in Colorado. High-revenue businesses file more frequently than lower volume businesses, for example.

Monthly

For monthly filers, reports are due on the 20th day of the month following the reporting month. For example, the July sales tax report is due August 20.

Quarterly

For quarterly filers, reports are due on the 20th day of the month following the reporting period.

• April 20, for first quarter ending March 31
• July 20, for second quarter ending June 30
• October 20, for third quarter ending September 30
• January 20, for fourth quarter ending December 31

Note: You must still file every quarter even if you made no sales in Colorado! This is typically called a “zero return” and it follows the exact same process as a normal return. (Just a little less data entry 😉)

Other Colorado tax info

Penalties

If you miss a filing or payment deadline, certain penalties can apply. Such a pain! Check the state’s website for up-to-date penalty fees.

Discounts

On a brighter note, you could be eligible for sales tax discounts in Colorado! Usually these discounts are designed to save you a bit of money, as a reward for complying with the sales tax system. Check the state’s website for up-to-date discount policies.

Sales Tax Holidays

One final tricky aspect about Colorado sales tax are the sales tax holidays. During these days of the year, you aren’t required to charge sales tax, and buyers will expect to not be charged. Check the state’s website for current sales tax holidays.