This blog post may now be out of date. For our most up-to-date info on Colorado sales tax, check out our “Colorado Sales Tax Guide for Businesses.”
If you have sales tax nexus in Colorado – or think you might – this blog post is for you. We’ll walk you through common sales tax scenarios having to do with the state of Colorado so you can sleep easier at night knowing the tax man isn’t coming after you!
You’re an online seller, but don’t live in Colorado
Congratulations! As of now, if you do not live or have a physical location in Colorado, you do not have to collect sales tax from buyers in this state.
That said, Colorado has recently been trying to change all that. They passed a law stating that non-reporting sellers (i.e. online sellers who sell into Colorado but do not collect sales tax) must notify their buyers that Colorado sales or use tax is due on purchases. As of February 19, 2014 this Colorado sales tax law is under injunction, meaning that it is not in place yet. But please watch the TaxJar blog for more information about this developing issue in the state of Colorado.
As of now, you have no physical presence in Colorado and you operate out of state, you do not have to collect sales tax from Colorado buyers.
You live in/and or operate a business in Colorado
As mentioned above, the sales tax situation in Colorado is a little weird, and the weirdness mainly affects businesses within the state. With most destination-based states, you as an online seller collect the state plus local sales taxes, like city or county sales tax. Colorado, though, is a little different.
In Colorado, if you are selling online for delivery by mail, parcel, or even your vehicle, the point of sale is considered your location. In other words, your location is also the “destination.”
if the delivery site is within the same city in which your business is located, you would collect all appropriate taxes, such as city, county, and state. If you deliver outside the city, county and any special taxing districts in which your business is located, the only jurisdiction you would share would be the state; therefore, only state sales tax would be collected.
This can actually make it a little easier for you, as many of your transactions will include only a base 2.9% sales tax rate.
But that’s not all. Colorado also has home-rule cities. These cities are responsible for collecting their own sales tax. The state’s department of revenue does not collect this sales tax and then remit it to these home rule cities. So if you live or have physical presence in a home-rule city, you are responsible for remitting sales tax to that city’s local taxing authority. Talk about a headache!
Click here to find out more about collecting and remitting sales tax in Colorado and in their home-rule districts.
If you are an online seller, live out-of-state, and use a fulfillment service (like FBA)
In the above section we chronicled how a business within the state of Colorado has a sort of “mini-nexus” that only makes them pay for local sales taxes if they have a physical presence where they sold an item. If they don’t have that physical presence, they only pay the state sales tax of 2.9%.
While the rules for this are a little unorthodox, the rules for nexus are actually quite straightforward. If you do business in Colorado, whether directly or indirectly or by a subsidiary, you must obtain a sales tax license.
If you have an office, a warehouse, a distributing house, salesroom, or any other physical place of business. If you do have nexus there, you must collect state sales tax plus all local sales taxes, including city, county, and others.
Collecting the correct sales tax rate
The base sales tax rate in Colorado is 2.9%, although this is subject to change every January and July. You would collect this base rate if you sell to a customer in Colorado who is in a different jurisdiction as you or if you have a physical presence (nexus) in a different jurisdiction from the customer.
If you operate in the same jurisdiction, you must collect the base rate plus local sales tax, which may include county, city, and other taxes. Also, if you’re an out of state seller and you have a physical presence where the customer lives, you must collect the base rate plus local rates.
Summing It Up: Colorado sales tax has in-state mini-nexus and special taxing districts
Basically, if you sell to a customer over the web and you operate 100% out of the state, you don’t have to worry about Colorado’s weird little in-state mini-nexus laws.
But everyone else who deals with Colorado must figure out what they owe. The first thing to remember is if you operate within the state or have a physical presence in the state, you owe at least 2.9%, the base rate for Colorado.
Local rates add up only when you have a physical presence near your customer, in the same jurisdiction. For example, if your business is in Denver and so is your customer, you likely must collect local sales taxes on top of the 2.9%. If you operate in Denver and your customer is in Boulder BUT you have a warehouse in Boulder, you have a physical presence and must therefore collect state plus local sales tax. On the other hand, if you operate in Denver and your customer is in Boulder and you have no physical presence in Boulder, you would only charge your customer the state’s current 2.9% sales tax rate.
Do you have experience selling in Colorado and want to share your story? Do you have questions about sales tax in general? Hate you even have to worry about this stuff in the first place? Comment below and get the discussion going?