How to Pay Sales Tax in Colorado for Your Business

Colorado sales tax is a levy on the retail sale of tangible personal property and certain services within the state. Its primary purpose is to generate revenue for both state and local government services. Businesses acting as agents for the state collect this tax from customers and then remit it to the Colorado Department of Revenue (CDOR). This system ensures funding for public infrastructure, education, and other essential programs across Colorado.

Understanding Sales Tax Obligations in Colorado

Businesses must determine if they are required to collect and remit sales tax in Colorado, which depends on establishing “nexus” with the state. Nexus signifies a sufficient connection, either physical or economic, that obligates a business to collect sales tax. A physical presence includes having an office, a warehouse, employees, or even selling at temporary events like craft shows within Colorado.

Economic nexus applies to businesses without a physical presence but that meet certain sales thresholds. A remote seller establishes economic nexus if their gross sales or services delivered in Colorado exceed $100,000 in the current or previous calendar year. This threshold includes both taxable and exempt sales, excluding wholesale transactions.

Colorado’s sales tax structure involves multiple layers: state, county, municipal, and special district taxes. The state sales tax rate is 2.9%, but combined rates can vary significantly, ranging from 2.9% to as high as 11.2% depending on the specific location of the sale. Home rule cities in Colorado can set their own sales tax rules and rates, requiring separate filing and remittance directly to those cities, distinct from state-administered taxes.

Sales tax generally applies to the retail sale of tangible personal property. While most services are not subject to state sales tax in Colorado, exceptions exist, such as gas and electric service for commercial use, intrastate telephone and telegraph services, prepared food and drink, and short-term lodging. Common exemptions from state sales tax include food for home consumption, farm equipment, and certain medical equipment. However, local jurisdictions may choose to tax some items exempt at the state level.

Registering for a Colorado Sales Tax Account

Businesses needing to collect sales tax in Colorado must register for a sales tax account with the Colorado Department of Revenue (CDOR). The primary online portal for this registration is MyBizColorado. This online method is generally recommended for faster processing.

Before beginning the online registration process, businesses should gather necessary information. This typically includes the Federal Employer Identification Number (EIN), business name and address, legal structure, and a description of the products or services being sold. For sole proprietorships without employees, a Social Security Number (SSN) may be used instead of an EIN.

During the online application, businesses will navigate through various sections to input their details. Upon successful registration, the business will receive a Colorado Account Number (CAN) and a sales tax license. The CAN is an eight-digit number distinct from the EIN or SSN, and it is printed on the sales tax license. There may be a small registration fee, along with a refundable $50 deposit.

Calculating and Preparing Sales Tax Returns

Preparing a Colorado sales tax return involves accurately determining the correct sales tax rate for each transaction and tracking all taxable sales. Colorado operates as a destination-based sales tax state, meaning the sales tax rate is based on the location where the item is delivered or the service performed. This requires considering the combined state, county, municipal, and special district rates applicable to that specific address.

The CDOR provides tools, such as a Geographic Information System (GIS), to help businesses identify the precise tax rates for any given location. Businesses must meticulously track their gross sales, identifying both taxable and non-taxable sales, as well as any applicable deductions, for the reporting period.

Filing frequency for sales tax returns is determined by the amount of sales tax a business collects. Businesses with a lower tax liability, such as those collecting $15 or less per month, have an annual filing frequency, with returns due by January 20th. Businesses collecting under $600 per month file quarterly, and those collecting $600 or more per month file monthly. Quarterly returns are due on the 20th of the month following the end of the quarter (e.g., April 20 for the first quarter).

Submitting Sales Tax Returns and Payments

Businesses submit their sales tax returns and remit payments primarily through the Colorado Revenue Online portal. This online system is the recommended method for filing, and electronic payment is required for businesses with annual state sales tax liabilities exceeding $75,000. Form DR 0100, the Colorado Retail Sales Tax Return, is filed through this portal.

To file, businesses log into their Revenue Online account. The system guides users through inputting their sales data, deductions, and exemptions. File a return for every period, even if no sales tax was collected, by submitting a “zero return” to avoid penalties.

Sales tax returns and payments are due by the 20th day of the month following the end of the reporting period. If the 20th falls on a weekend or holiday, the due date shifts to the next business day. Payments can be made via Electronic Funds Transfer (EFT) or by credit card, though credit card payments may incur additional fees. Businesses can also make payments by check or money order, but these methods follow online filing.

Managing Your Colorado Sales Tax Account

Ongoing management of a Colorado sales tax account involves several administrative tasks to ensure continued compliance. Businesses can update their information, such as changes to their mailing address or business name, directly within the Revenue Online system.

The Revenue Online portal also provides access to view previously filed returns and payment history. Businesses can also view notices from the Department of Revenue through their online account.

If a business ceases operations or no longer has nexus in Colorado, close the sales tax account. This process can be completed through Revenue Online by selecting the “Cease Account” option. Alternatively, a Business Account Closure Form (DR 1108) can be mailed, though the online method is faster. File a final return and remit any outstanding tax liabilities when closing an account.