CO Sales Tax 101

Colorado Sales Tax Resources for Online Sellers

by Mark Faggiano

Colorado Sales Tax

This blog post may now be out of date.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?

  • M.B.

    As a former municipal sales tax auditor in Colorado, it has been my experience that often delivery in your own vehicles can create nexus in other municipalities. This pertains to your OWN vehicles, not delivery by USPS or FedEx. The thought behind it is that operating your own vehicles in a municipality means that you are “engaged in business”, therefore creating nexus.

    This is a quote from Denver’s website “Engaged in business in the City” includes performing any activity in Denver in connection with the selling, leasing, or delivering in the City of tangible personal property by a retail sale for use, storage, distribution, or consumption within the City. http://www.denvergov.org/treasury/TreasuryDivision/BusinessTaxes/SalesTaxInformation/SalesTaxRates/tabid/440491/Default.aspx

    It varies depending on location as to how often your vehicles deliver into a particular area to create nexus but I’ve always found that a good rule of thumb is if you deliver more than twice in a year to a particular area then you have nexus.

    If the deliveries are expected to be an ongoing activity then it would be a good step to contact the different taxing authorities to determine if you do have nexus and take the appropriate steps to become licensed to collect/report sales taxes.

  • H

    I’m still unclear about one thing – if my delivery address is not located in Colorado, but I purchase an item from an online retailer with a physical presence only in Colorado, am I supposed to pay CO sales tax?

    • If the taxable item is not being shipped to CO, then there is no need to collect CO sales tax.

      • Ubetiam

        So, you’re saying that the ONLY time I need to charge any tax on items I sell from my online store (I’m in CO), is when I’m selling to someone within the state, yes? The base is 2.9% and varies by jurisdiction. I’m just now configuring my shopping cart and thought I had to charge everyone at least the base rate, plus taxes from the county in which I reside, no matter where I’m shipping to. Now I’m going to need a bunch of caveats … CO residents, add 2.9% … CO residents in JeffCo, add 4.2% … CO residents in Denver, add ??%, etc., etc., right? UGH.

  • Yes, you only need to charge sales tax in states where you have sales tax nexus. If you only have sales tax nexus in Colorado, then only charge sales tax to buyers in Colorado.

    That said, you and correct and Colorado is a “destination-based” sales tax state. So you need to charge sales tax at the rate of your buyer’s location, not your location.

    • Sheila

      ok different type of question. I live and sell organic food in Colorado. no tax because its food but yes tax on supplements or personal care? Do I charge any tax if I ship to Kansas , Iowa or Illinois? fooditems?

      • Hi Sheila,

        Whether or not you charge sales tax to buyers in a state depends on whether or not you have sales tax nexus in that state. You can find out more about what constitutes nexus in each state here: http://www.taxjar.com/states or on the TaxJar blog here: blog.taxjar.com. Most of the time you only have nexus if you have some kind of “significant presence” in a state (office, goods in a warehouse, employee, etc.)

        Every state governs sales tax by it’s own rules. Some states might say supplements and food are non-taxable but some might say they are. You should check with every in state in which you have nexus in order to determine which items are taxable or not in that particular state.

    • Tatiana L

      OK, just to clarify, as a business residing in Colorado with an online only store, I’m only charging Colorado residents tax based on where they live in Colorado, right? So this means that if someone from Cali orders something from my Etsy store and I ship it to them, I charge no tax on that item, is that correct?

      • That sounds correct. You have nexus in Colorado (so you’d charge your customers) and Colorado is a destination-based sales tax state (so you’d charge at the rate of your buyer’s ship to location.) Good luck with your business!

        • Tatiana L

          Thank you for your feedback, I’m still a bit confused – do I only charge tax to clients who live in Colorado? Since I have nexus in Colorado, I only charge sales tax to buyers living here in Colorado…so 2.9% state tax and any additional city or county tax, right?

          I’m confused b/c in a higher posting you said since Colorado is a destination-based sales tax state, I actually need to charge tax at the rate of the location of the buyer. So if someone lives in Los Angeles, do I charge them the 2.9% Colorado tax or the California plus Los Angeles tax?

          • Hi Tatiana,

            You’d only charge sales tax to buyers in states where you have nexus. If you don’t have nexus in California, then you don’t need to charge them anything.

            But if you did happen to have nexus in California, you’d only charge them their rate in California. The Colorado rate doesn’t come into play at all in other states. Consider each state it’s own separate silo. I hope this answered your question!

  • Tracee Ezman

    I sell at home shows in Colorado and california. My product is shipped from California to the customer. For this business, I do not have a showroom or office or warehouse in colorado. What tax rate do I charge?

    • Hi Tracee,

      Colorado considers “independent contractors or other sales people soliciting business” in the state to create nexus, so it sounds like you may have nexus in both Colorado and California. And in that case, you’d need to register for a sales tax permit and collect in both states. You can find out more here and by contacting the Colorado Department of Revenue: http://www.taxjar.com/states/colorado-sales-tax-online/

  • jlaurenti

    This post might be too old for this to get a response…

    I’ve been trying to develop a set of tax rules and behaviors for a Colorado retailer’s website, and I first came across this blog post. The post here suggests to me that if my client ships a package from his location, and the shipping address is several counties over… he would only charge and remit the 2.9% state sales tax.

    However, when I called the Colorado Department of Revenue, they suggested that my client should collect the county and local taxes of the shipping address as well. And if that town is a home-rule city, they’d have to remit it separately to that city. If it’s just a statutory city, they’d just remit it to the town.

    I’m seeing paradoxes also with how Colorado-based retailers operate their websites as well. Some subscribe to what’s described in this blog, and others subscribe to collecting the shipping destinations complete tax rate.

    Are there some primary sources to back up the claim that only the state tax should be collected in these cases? I think that many of the links that this post referred to must’ve moved.

  • Kayla

    TaxJar – It is hard filtering through the below comments…I want to clarify a few things. I am in Colorado without a sales tax id. I am just starting to sell some home furnishings online through Charish.com. I am currently selling recreationally, rather than as a business. Do I still need a tax ID? Do I only charge Colorado sales tax if my online buyer is from Colorado. Do I need to charge sales tax to buyers from other states? Do I charge sales tax to a buyer if I was originally charged tax on the items, as they where not purchased wholesale? Is there other local taxes I need to charge on top of sales tax in Colorado? Do I charge shipping tax to buyers from Colorado and other States? Charish.com allows you to mark local pickup available for shipping options as well as listing shipping and handling charges separately on the invoice from purchased items…do I still charge shipping tax? Thank you!!

    • Hi Kayla, I recommend you check out our Sales Tax 101 Guide. This will answer lots of your questions: http://www.taxjar.com/guides/intro-to-sales-tax/

      But just to clarify – you need a sales tax license if you’re selling anything. It doesn’t matter if you sell a couple items fro your kitchen table or have a huge business. And sales tax is on the transaction, not the item. So it doesn’t matter if you paid sales tax on an item you bought to resell, you still need to charge sales tax on it if you have sales tax nexus. The Sale Tax 101 Guide and this page will help you a lot: http://www.taxjar.com/states/colorado-sales-tax-online/

Start your 30 day free trial of TaxJar. No credit card required.
Processing...
Thank you! Your subscription has been confirmed. You'll hear from us soon.
Subscribe to the TaxJar Sales Tax Blog
ErrorHere