Should you collect sales tax in Colorado?
Sales tax is levied on retail selling tangible personal property to your customers, including leasing or renting. However, you will collect the sales tax if you determine the nexus in Colorado. A nexus is a presence that may come physically or economically.
Physical nexus is typically created when your business has a store, warehouse, or any office location in Colorado. Economic nexus is intertwined when you cross paths with threshold limits already stipulated by the state. These thresholds are based on revenue.
Let’s explore if your business has a Physical nexus in Colorado.
A physical nexus is integrated when your business is engaged in the following in Colorado:
- Servicing tangible personal property in Colorado;
- Maintaining, occupying or using a place of business or an office in Colorado;
- Employing or retaining any contractor, including an agent, representative or salesman, by whatever name called, engaged in activities relating to selling, delivering, installing or taking business orders;
- We are having a stock of goods in Colorado.
Is it constituting an Economic nexus in Colorado?
Suppose you are a remote seller (i.e., one who doesn’t have a physical presence in the state) and your business sales in Colorado exceed $100,000 during the current or previous calendar year. In that case, you are required to comply with and register under sales tax rules.
Moreover, remote or out-of-state sellers who make sales of more than $100,000 from customers in Colorado are required to provide notice on each sale that “Use tax” is due and give a summary of purchases to each customer in Colorado to whom a sale of $500 or more was made every year.
You may also refer to the Colorado Revenue Department advisory to know more about business activities that may create an economic nexus within the state.
How can you Register for Sales tax in Colorado?
If you operate only in a single location in the state, you can apply online for a sales tax permit. Alternatively, you can complete the Sales Tax/ Wage withholding Account Application in form CR 0100 and mail it to their address.
However, if you operate in multiple locations, you must complete the Sales Tax/ Wage withholding Account Application in form CR 0100 to get the sales tax permit.
You would also need to pay a sales tax registration fee of $16 and an additional deposit of $50, which will be refunded once you pay the first $50 sales tax dues to the state.
Additionally, before applying for a new tax account number, make sure you have the following information handy:
- FEIN and Social Security numbers of all officers, partners or owners ;
- Address details (physical and mailing);
- Business incorporation dates in Colorado;
- Contact information;
- Nature of business.
Is your product or services liable to Sales tax in Colorado?
Tangible Property: Sales tax in Colorado is imposed primarily on the retail sale of tangible personal property, such as Furniture, giftware, toys, etc.
Services. Although services are not subject to sales tax in Colorado, a few exceptions include service or labour costs leading to the creation of tangible personal property, gas and electric service for commercial use, intrastate telegram and telephone service, etc. For more information, click here.
Digital Product: Colorado charges sales tax on digital products. So, if you sell digital products such as software, streaming services, e-books, etc., you must collect sales tax. Refer to guidance issued by the state in digital goods.
SAAS: SAAS is software that allows users to connect to the cloud and use it over an internet connection. This is non-taxable in Colorado. Visit here for more information.
Additionally, the state provides some exemptions from the sales tax levy, such as medical equipment, prescription drugs, farm equipment, etc. Click here to read about all the exemptions.
You can also visit the Colorado Department of Revenue website for more concise information about taxability in Colorado.
How should you collect and calculate state taxes in Colorado?
Collecting and computing accurate sales tax to be remitted to the state may involve stratospheric efforts, especially when you are not Colorado-based. The sales tax is destination-based in Colorado, which means you must collect taxes on tangible property sold to buyers based in Colorado.
Complexities involved where you have a business nexus even if not in the state. Any default may lead to severe concerns, penalties, or fines by the state. That is what TaxDo is here for you! Our specialized sales tax calculator and professional services will simplify your job and lighten your compliance burden.
Colorado has a base sales tax rate of 2.9%, followed by local tax rates that vary by city and municipality. Click here for the city-wise sales tax rates (including local rates).
Below is the simple formula you can use to calculate your sales tax collection on each merchandise sold:
Sales Tax collectable = Sale value * (2.9% plus local tax rate)
Do you need to collect sales tax on Shipping Charges?
Shipping charges can be delineated separately in the sale invoice raised to the customer or dissipated within the selling price of the items sold. If shipping charges are separately stated on the invoice, there will be no tax applicability; however, you need to collect the tax on the total sales price, including shipping charges, if not stated separately. Click here for the guidance issued by the state.
How should you file sales tax in Colorado?
There are multiple options available to you for reporting your sales tax.
E-file: You can file your return online from their e-filing portal.
File by Mail or In-person: Complete Form DR-0100 and mail it to their address or submit it in person.
You can also remit the sales tax through their online portal. Please note that you must pay the tax through EFT if your sales tax liability during the year exceeds $75,000.
Filing frequencies and due dates
You need to file the sales tax return Monthly if your sales tax collection is $300 or more per month. You can file quarterly if the sale tax collection is below $300 monthly. Further, you can file annually when your monthly sales tax collection is at most $15.
Additionally, wholesale businesses with a sales tax liability of at most $180 per year can file annually.
Based on your filing frequency, you must file the return by the 20th of the month following the reporting month, quarter or year, as the case may be.
Note: If the due date is a holiday or weekend, the next business day would be considered the final due date. This link will take you to the concise information on sales tax filing.
Are there any fines or penalties for- default in filing or paying sales tax?
If you fail to file or pay the sales tax within the due dates, the state levies a penalty of 10% of sales tax plus 0.5% for each month, not to exceed 18% in total, and subject to a minimum penalty of $15. Here is what the Colorado Revenue Department says about penalties and fines.
However, assigning your tax burden to TaxDo would not result in you paying any penalty or interest. We will adhere to the due dates.