Sales tax is complicated, but a few states really take the cake when it comes to complexity. One of those states is Colorado.
Because we get so many questions from sellers on how to register and collect Colorado sales and use tax correctly, we thought we’d share our take. The below is based on consultation with the Colorado Department of Revenue and sales tax experts.
How Colorado Wants Online Sellers to Register & Collect Sales Tax
Here are three common Colorado sales tax scenarios, and instructions on how Colorado wants online sellers to handle them:
You are located in Colorado and only makes sales at your location – If you only hand over products to buyers from your location (i.e. a brick and mortar store, food truck, craft fair, etc.) then the state of Colorado wants you to register for a sales tax permit.
You are located in Colorado and ship sales throughout the state – If you are located in Colorado but also make online sales, the state of Colorado wants you to register for both a sales tax permit and a retailer’s use tax permit.
Use caution here. We’ve seen the Colorado Department of Revenue customer service reps tell Colorado-resident sellers they only need a sales tax permit, even though that contradicts their own documentation. In our understanding after working with the Colorado Department of Revenue, in this scenario you truly need both a sales tax permit and a retailer’s use tax permit.
You are not physically located in Colorado but ship products to Colorado – If you are an online seller who has no location in Colorado but ships products to Colorado, then the state wants you to register for a retailer’s use tax permit.
You can read more about Retailer’s Use Tax on the Colorado Department of Revenue website.
And for more documentation about when to register for each type of permit, read the Colorado Department of Revenue’s Guidelines for Determining When to Collect State-Collected Local Sales Tax.
Why is registering correctly in Colorado important?
For two reasons:
- To collect sales & use tax correctly – Every state is different, and Colorado has specific rules you must follow in order to collect sales and/or use tax what they deem “correctly.”
- To enroll in TaxJar AutoFile – If you want TaxJar to AutoFile your Colorado sales tax return for you, you must be registered for the correct permit – either a Colorado sales tax permit or a Colorado use tax permit. If you are registered for the wrong permit, or are missing either the sales tax or the use tax permit when you need both, we require that you get registered for the correct permit as required by the Colorado Department of Revenue.
I hope this has explained how to register for a Colorado sales and/or use tax permit as an online seller. Have questions or something to say? Start the conversation in the comments!