How to File and Pay Colorado Sales Tax

Sales tax is a consumption tax collected by businesses on the sale of goods and certain services, then remitted to the taxing authority. In Colorado, businesses selling tangible personal property or specified services must collect and pay sales tax. This tax helps fund various state and local public services and infrastructure.

Obtaining Your Sales Tax License

Before collecting any sales tax, businesses must obtain a Colorado sales tax license. This license authorizes businesses to collect sales tax on behalf of the state. It is a prerequisite for any entity selling, renting, or leasing tangible personal property in Colorado.

The primary method for applying for this license is through the Colorado Department of Revenue’s (CDOR) Revenue Online portal. Businesses typically provide their legal name, address, federal Employer Identification Number (EIN), business type, and owner information during the application. The application may involve a small fee and a refundable deposit. Online applications typically receive an immediate license number, with a physical license mailed later. Most Colorado sales tax licenses are valid for a two-year period, expiring at the end of odd-numbered years.

Determining Taxable Sales and Rates

Colorado imposes a state sales tax of 2.9% on retail sales of tangible personal property. While services are generally not subject to sales tax, specific services are taxable, including commercial gas and electric service, and intrastate telephone and telegraph services. If a transaction bundles a taxable product with a generally non-taxable service, the entire price may become taxable unless certain conditions are met.

Common exemptions from sales tax include sales for resale, certain agricultural products, and food for home consumption. Businesses are responsible for determining the correct sales tax rate based on the destination of the sale, meaning the location where the customer receives the goods. This “destination sourcing” rule applies to both in-state and out-of-state sellers who have established economic nexus in Colorado, defined as having over $100,000 in retail sales in the state during the current or previous calendar year. The CDOR website provides tools and publications to help businesses identify the applicable state, county, and special district sales tax rates for specific locations.

Calculating and Documenting Sales Tax Due

Accurate record-keeping forms the foundation for properly calculating sales tax due. Businesses should maintain detailed records of all sales, including invoices, point-of-sale data, and any exemption certificates for non-taxable transactions. At the end of each filing period, businesses must sum their gross sales.

The total sales tax collected is then determined by applying the relevant sales tax rates to the taxable sales. Deductions, such as for returned goods or bad debts, can reduce the total amount of tax owed, and these must also be documented. Businesses are assigned a filing frequency—monthly, quarterly, or annually—by the CDOR based on their average monthly sales tax liability. For instance, businesses collecting $600 or more per month typically file monthly, while those collecting less than $15 per month may file annually.

Submitting Your Sales Tax Return

Once sales tax figures are calculated and documented, businesses must submit their sales tax return and remit payment. The Colorado Department of Revenue’s Revenue Online portal is the mandatory platform for filing state and state-administered local sales tax returns. Businesses log into their account, navigate to the sales tax filing section, and input their calculated figures for gross sales, taxable sales, deductions, and the total tax due into the designated online fields.

Payment can be made directly through the portal via ACH debit or other electronic methods. Businesses with annual state sales tax liabilities exceeding $75,000 are required to pay via Electronic Funds Transfer (EFT). Sales tax returns and payments are generally due on the 20th day of the month following the close of the reporting period. Failing to file or pay on time can result in penalties, which are typically the greater of $15 or 10% of the tax due, plus an additional 0.5% for each month the tax remains unpaid, up to a maximum of 18%. Even if no sales tax was collected during a period, a “zero return” must still be filed to avoid penalties.

Managing Local Sales Tax Obligations

Colorado’s sales tax system includes a distinction between state-collected local sales taxes and “home-rule” city sales taxes. State-collected local sales taxes are filed through the CDOR’s Revenue Online portal. Home-rule cities, however, administer their own sales taxes.

Businesses operating within home-rule cities, such as Denver, Colorado Springs, Boulder, and Fort Collins, must register separately with each city and file returns directly with them according to their specific rules and forms. Businesses must determine if their activities trigger an obligation to collect and remit sales tax in any home-rule jurisdictions. This often requires checking the individual websites of these cities for their unique registration, filing, and payment instructions, as their taxability rules and exemptions may differ from the state’s. To simplify compliance, the state has developed the Sales and Use Tax System (SUTS), an online portal that allows for single-point registration and filing for the state, state-administered jurisdictions, and some participating home-rule cities. However, not all home-rule cities participate in SUTS, necessitating direct interaction with those specific municipal tax authorities.