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Learn the fundamentals of sales tax
Do you need to collect sales tax in Colorado?
You’ll need to collect sales tax in Colorado if you have nexus there. There are two ways that sellers can be tied to a state when it comes to nexus: physical or economic. Physical nexus means having enough tangible presence or activity in a state to merit paying sales tax in that state. Economic nexus means passing a states’ economic threshold for total revenue or the number of transactions in that state.
Do you have physical nexus in Colorado?
Colorado considers a seller to have physical nexus if you have any of the following in the state:
- An office, distributing house, sales room or house, warehouse, or other place of business
- Independent contractors or other representatives in Colorado soliciting business
You can click here to read exactly what the Colorado Department of Revenue (Colorado’s taxing authority) has to say about what constitutes sales tax nexus in Colorado, under Regulation 39- 26-102.3.
Are you required to follow Colorado’s “Notice & Report” law?
After a prolonged court battle, Colorado’s “Notice and Report” law went into effect for eCommerce sellers on July 1, 2017. This law states that ANY online seller who is not already required to collect sales tax in Colorado, but who grosses more than $100,000 in sales from buyers in Colorado is required to do the following:
- Along with every transaction to a Colorado buyer, provide a notice that “use tax” is due on the sale
- Every year, provide customers who purchased more than $500 from you with an annual summary of their purchases to help them pay use tax due AND provide this information to the Colorado Department of Revenue
Do you have economic nexus in Colorado?
Effective December 1, 2018, Colorado considers vendors who make more than $100,000 in sales in the previous or current calendar year in the state to have economic nexus. This means the state considers these vendors obligated to collect sales tax from buyers in the state. You can read Colorado’s economic nexus guidance for sellers here and you can read more about economic nexus in every state here.
Is what you’re selling taxable?
If you’ve discovered you have sales tax nexus in Colorado, your next step is to determine if what you’re selling is taxable.
Services in Colorado are generally not taxable. However, if the service you provide includes creating or manufacturing a product for sale, you may have to deal with the sales tax on products.
Tangible products are taxable in Colorado, with a few exceptions, such as some medical related items and medical devices. There is also an exemption for beetle wood products and some machinery — for the full list, consult the Colorado Department of Revenue.
Is SaaS taxable in Colorado?
SaaS is non-taxable in Colorado because it is not delivered in a tangible medium. (Source)
How to get a sales tax permit in Colorado
In Colorado, sellers based in-state apply for a Sales Tax License while sellers based out-of-state apply for a Colorado Retailer’s Use Tax License.
- If your business is based in Colorado, and you only have one location, apply online for a business license here or apply by mail using the Sales Tax /Wage Withholding Account Application (CR 0100) to apply for a Colorado Sales Tax License.
- If you have more than one location in Colorado, complete the Sales Tax /Wage Withholding Account Application (CR 0100) to apply for a Colorado Sales Tax License
- If your business is based outside of Colorado, as of December 1, 2018, all sellers with nexus in Colorado (physical, economic, or otherwise) are required to have a Sales Tax account and collect sales tax on ALL taxable sales.
You need this information to register for a sales tax permit in Colorado:
- Personal identification information
- Business identification information
- Business entity type
- Products that you sell
For in-state sellers, it costs $16 to apply for a Colorado sales tax license. There’s also a $50 deposit.
For sellers based out-of-state who are applying for a Retailer’s Use Tax License, the permit is free.
How to Collect Colorado Sales Tax If You Have a Location in Colorado
Colorado is a little different than other states when it comes to how retailers collect sales tax. Colorado is divided into districts. If you make a sale to someone in your district, you collect the full combined sales tax rate at your buyer’s ship to address.
You can look up your combined local sales tax rate with TaxJar’s Sales Tax Calculator.
If you have a location in Colorado and make a sale to someone outside your district, you collect the “retailer’s use tax.” Retailer’s use tax is made up of the Colorado state tax of 2.9% AND any local district taxes. These district taxes are often: Regional Transportation District (RTD), Scientific and Cultural Facilities District (CD) or Regional Transportation Authority (RTA) taxes.
Retailer’s use tax does not include any local city taxes that may be applicable.
The Colorado state sales tax rate is 2.9%.
How to Collect Colorado Sales Tax If You Do NOT Have a Location in Colorado
If you are not based in Colorado, but have sales tax nexus in Colorado you are considered a Colorado “remote seller.” As a remote seller, you are also required to collect “retailer’s use tax” from Colorado buyers.
Also, if you live in or your business is based in a location in Colorado you may find that you live in a home rule city. The Colorado Department of Revenue doesn’t collect local sales tax for these cities, so you’ll need to contact your local taxing authority if you live in a home rule city. See a list of Colorado’s home rule cities starting on page 8 in this publication.
There are a lot of details that go into getting Colorado sales tax right. Fortunately, your TaxJar Colorado State Report will help you figure out just how much sales tax to file in Colorado. Sign up for a 30-day free trial of TaxJar and automate your Colorado sales tax filings.
Should you collect sales tax on shipping charges in Colorado?
As an online seller, you will most likely be required to charge sales tax on shipping charges in Colorado.
Read a full explanation of sales tax on shipping in Colorado here.
When are Returns Due?
When you file and pay Colorado sales tax depends on two things: your assigned filing frequency and your state’s due dates.
How often will you file sales tax returns in Colorado?
States assign you a filing frequency when you register for your sales tax permit. In most states, how often you file sales tax is based on the amount of sales tax you collect from buyers in the state.
In Colorado, you will be required to file and remit sales tax either monthly, quarterly or annually.
Colorado sales tax returns are always due the 20th of the month following the reporting period. If the filing due date falls on a weekend or holiday, sales tax is generally due the next business day.
Filing Sales Tax
When it comes time to file sales tax in Colorado you must do three things:
- Calculate how much sales tax you owe
- File a sales tax return
- Make a payment
How to Calculate How Much Sales Tax You Owe in Colorado
Calculating how much sales tax you should remit to the state of Colorado is easy with TaxJar’s Colorado sales tax report.
All you do is connect the channels through which you sell – including Amazon, eBay, Shopify, Square and more – and we’ll calculate exactly how much sales tax you collected. All the information you need to file your Colorado sales tax return will be waiting for you in TaxJar. Once your TaxJar account is set up, all you have to do is login.
How to File and Pay Sales Tax in Colorado
File online – File online at the Colorado Department of Revenue. You can remit your payment through their online system. File by mail – you can also fill out form DR-0100 and mail it in to the Colorado Department of Revenue.
Colorado has also provided a list of common sales tax filing errors you may want to be on the lookout for!