A Breakdown of Colorado Small Business Taxes

Operating a small business in Colorado involves a multi-layered system of tax obligations at the state, county, and city levels. Complying with these duties is necessary for maintaining a business in good legal standing. This guide provides an overview of the primary tax responsibilities for a small business, from initial registration to filing and payment.

Business Registration for Tax Purposes

Before remitting taxes in Colorado, a business must register with the Colorado Department of Revenue. This initial step connects your business to the state tax system and is handled through a single application. The primary document is the Colorado Business Registration, Form CR 0100.

To complete this form, a business owner must provide several key pieces of information. This registration consolidates state tax obligations like sales tax and wage withholding under a single account. The required information includes:

• A Federal Employer Identification Number (FEIN) from the IRS
• The legal name of the business and any trade names
• Its physical location and mailing address
• The business’s legal structure, such as a sole proprietorship, LLC, or corporation
• The date business operations began

The form can be submitted online to create a tax account for the business. After processing, the business receives a Colorado Account Number for all subsequent interactions with the Department of Revenue. This number is used when filing returns for various state taxes.

State-Level Business Taxes

Once registered, a Colorado business is subject to several state-administered taxes, with specific obligations depending on the company’s structure and activities. These taxes are distinct from federal requirements and form the core of a business’s state compliance responsibilities.

Income Tax

The method for handling state income tax is tied to the business’s legal structure. For pass-through entities like sole proprietorships, partnerships, S corporations, and most LLCs, the business itself does not pay income tax. Instead, profits and losses are passed through to the owners, who report this income on their personal state tax returns. Colorado applies a flat individual income tax rate of 4.25% to taxable income.

C corporations are taxed as separate legal entities and must file a Colorado Corporate Income Tax Return. These businesses pay tax on their net income earned in the state at a flat rate of 4.25%. Corporations with an expected tax liability over $5,000 for the year must make quarterly estimated tax payments, due on the 15th of April, June, September, and December.

Sales Tax

Businesses selling tangible personal property or specific taxable services in Colorado must collect and remit sales tax. The state imposes a base sales tax rate of 2.9%. A business is required to collect this tax if it has a “nexus,” or sufficient presence, within the state, which can be established through a physical location, employees, or substantial sales.

The state’s system is complex, as it also administers sales tax collection for many local governments. However, this does not cover all local obligations, particularly in “home-rule” cities, which have separate tax requirements.

Withholding Tax

Businesses with employees are required to manage withholding tax. Employers must withhold a certain amount from employee wages to prepay their state income tax liability, a process similar to the federal system. The amount withheld is based on the employee’s wages and their Form W-4 information. These funds are held in trust and must be remitted to the Colorado Department of Revenue on a set schedule.

Unemployment Insurance Tax

Another employer obligation is the state unemployment insurance (SUI) tax. This is a payroll tax paid by the employer, not deducted from employee wages. The funds go to the Colorado Department of Labor and Employment to provide assistance to unemployed workers. New employers are assigned a standard rate, which can later be adjusted based on the employer’s “experience rating,” reflecting its history of unemployment claims.

In addition to unemployment insurance, Colorado employers and employees must contribute to the Family and Medical Leave Insurance (FAMLI) program. This mandatory, state-run program provides workers with paid leave for qualifying family, medical, and safety-related reasons. The program is funded by premiums paid by both employers and employees.

Local and Property Taxes

Beyond state-level duties, Colorado businesses must address taxes administered at the county and municipal levels. These local taxes are separate from and in addition to those managed by the state, often requiring separate registrations and filings directly with the local jurisdiction.

Business Personal Property Tax

Counties in Colorado levy a business personal property tax on tangible assets used to operate a business, such as machinery, equipment, and office furniture. The tax is based on the assessed value of the property and is handled by the county assessor’s office where the assets are located. Each year, businesses must file a declaration listing all their taxable personal property with the county, which then calculates the tax owed.

Local Sales Tax in Home-Rule Cities

A unique feature of Colorado’s tax system is the presence of “home-rule” municipalities. These cities, including major centers like Denver and Boulder, have the authority to administer and collect their own local sales taxes separate from the state’s system. Businesses operating in these jurisdictions must obtain a local tax license for each city. This means a business in a home-rule city will have filing obligations with both the Colorado Department of Revenue and one or more municipal tax authorities.

Occupational Privilege Tax

Certain cities, such as Denver, impose an Occupational Privilege Tax (OPT). This is a local tax on both businesses and their employees for the privilege of working within the city’s boundaries. The tax is a flat monthly fee per employee. The business is responsible for withholding the employee’s portion from their paycheck and remitting it to the city along with the employer’s portion.

Filing and Paying Colorado Business Taxes

After completing registration, the final step is the ongoing process of filing returns and making payments. Colorado has streamlined many of these procedures through a centralized online portal, but adhering to schedules is necessary to maintain compliance.

The primary tool for managing state-level tax obligations is the Colorado Department of Revenue’s “Revenue Online” portal. This website is where businesses file returns for sales and withholding taxes. The system allows for the electronic submission of tax forms and direct payment, which helps ensure accuracy and provides an immediate record of the filing.

The frequency for filing sales and withholding tax returns is determined by the amount of tax a business collects or withholds. Businesses with a larger tax liability are required to file and pay monthly, while those with smaller amounts may be assigned a quarterly or annual schedule. The Department of Revenue notifies each business of its required filing frequency upon registration.

Acceptable payment methods through the Revenue Online portal include Electronic Funds Transfer (EFT) and credit cards. While EFT payments are often free, using a credit card may incur a processing fee from a third-party vendor. Businesses must meet all tax deadlines, as late filing or payment can result in the automatic assessment of penalties and interest.