State Sales Tax Guide - Colorado

If you’re selling goods in Colorado, there’s a good chance you’ll need to collect a sales tax and send that money to the Colorado Department of Revenue. If you don’t, you could face monetary penalties, interest, and/or be subject to a tax lien. Paying the necessary Colorado sales taxes seems like a simple thing to do, but it can often be a complicated process. 

This guide is designed to shed some light on that process.

What Is the Colorado Sales Tax Rate?

The Colorado state sales tax rate is 2.90%. However, the effective sales tax rate is higher in most areas as county and municipal sales tax get added to this amount. 

For instance in Aspen, there’s the Aspen sales tax of 2.40%, the Pitkin County sales tax of 3.10%, the Roaring Fork RTA Snowmass and Aspen sales tax of 0.40% and the Pitkin County MTSD sales tax of 0.50%. This adds up to a total sales tax in Aspen of 9.30%.

If you’re curious about the total sales tax for a particular location in Colorado, the Colorado Department of Revenue has a handy Colorado Sales Tax Lookup tool.

Sales Tax Exemptions

Note that sales tax doesn’t apply to all products or services sold in the state. For example, there are various exemptions where there’s no state sales tax. Some of these include:

• Food sold from a vending machine.
• Medical and farm equipment.
• Residential energy usage.
• Components used to generate electricity from a renewable energy source.
• Wholesale sales.
• Most services.

Sales Tax Vendor Fees

A Colorado retailer may keep for itself a certain amount of the collected sales tax to help it cover the costs of collecting and paying the Colorado state sales tax. Not all businesses are eligible for this service fee (or vendor fee), but if you qualify, your sales tax due is reduced by the amount of the fee. You must file and pay on time to keep the fee. 

If a business is entitled to a service fee that exceeds $1,000 for the applicable filing period, then a special form (State Service Fee Worksheet) may be required.

Who Needs to Collect Colorado Sales Tax?

As a rule of thumb, only the sale of tangible goods results in a state sales tax. Three notable exceptions are commercial gas and electricity utilities for commercial use, hotel rooms, and intrastate telephone services. Also, some Colorado home-rule cities that administer their own sales tax have the option of imposing a sales tax on certain services.

This means most retailers located in Colorado or who sell to customers located in Colorado, must collect a sales tax. If a business is obligated to collect a Colorado sales tax, it will need to first obtain a Colorado sales tax license.

How to Pay and File a Sales Tax Return in Colorado 

Filing and paying the Colorado sales tax can be done with either a paper return or by with e-filing. If e-filing, there are several methods available, including:

• The Colorado DOR online portal.
• Using a sales tax software vendor that’s been approved by the Colorado DOR.
• Using an approved Microsoft Excel spreadsheet.
• XML (Extensible Markup Language).

Regardless of how you file your sales tax return in Colorado, there are two things to be aware of. First, if you have a Colorado sales tax license, you will need to file a sales tax return every applicable filing period, even if you have zero sales during that time (and therefore, collected no sales tax). If you don’t file this zero sales tax return, the Colorado Department of Revenue will file a return for you and estimate the amount of sales tax they think you generated.

Second, if your business pays more than $75,000 per year in Colorado sales tax, you must pay the necessary sales tax with an Electronic Funds Transfer, or EFT. If you’re not required to pay with an EFT, you have the option of using a check or money order, as well as a credit or debit card.

What’s the Due Date for Colorado Sales Tax? 

When and how often you must file a Colorado sales tax return depends on the amount of sales tax collected each month. If the collected sales tax is $300.00 or more each month, then a monthly sale tax return is needed. These are due on the 20th of the month following the reporting period. So if your business collected $325.78 in Colorado sales tax for July, then the sales tax return is due by August 20th.

If the collected sales tax is less than $300.00 per month, then sales tax returns must be filed quarterly, with the following deadlines:

• April 20 for the first quarter (for sales made from January to March).
• July 20 for the second quarter (for sales made from April to June).
• October 20 for the third quarter (for sales made from July to September).
• January 20 for the fourth quarter (for sales made from October to December).

If you collect an average of $15.00 or less each month, then you file a return once a year. These annual sales tax returns are due January 20 following the year of sales. 

For a seasonal business, which may only generate sales in Colorado for a few months of the year, it may request permission from the Colorado Department of Revenue to only send sales tax for the months that the business is in operation.

You’ll notice that the sales tax filing deadline is always on the 20th of a particular month, but this assumes this is a regular business day. If the 20th falls on a weekend or holiday, then the deadline moves to the next business day.

Are There Penalties for Filing a Late Sales Tax Return in Colorado? 

You could have to pay penalties and interest, in addition to any unpaid sales taxes if you fail to:

• File a sales tax return by the due date;
• Pay sales tax by the due date; or
• Properly account for all state and local sales taxes that are due.

Penalties and/or interest may apply even if you fail to do any of the above on accident, although they will be more severe if the sale tax infraction was deliberate or committed fraudulently.

If you get behind on sales tax payments, you may be able to set up a payment plan. The DOR reviews payments plan requests for sales tax delinquencies on a case-by-case basis. 

Colorado Penalties for Sales Tax Noncompliance

If you “neglect” or “refuse” to file a sales tax return or pay any sales taxes due, you could face a penalty which is the greater of $15.00 or 10% of any unpaid sales taxes, plus 0.5% for each month the tax goes unpaid. However, this penalty rate shall not exceed 18%.

Interest begins to accrue on any unpaid taxes starting from the original due date of the tax. The interest rate depends on the calendar year in which the interest accrues. For example, in 2022, the interest rate was 6%.

This interest rate may be reduced if you pay your past-due sales taxes quickly. Generally speaking, you will receive about a 3% reduction of the interest rate if you:

• Pay the tax bill in full before the Colorado DOR issues a notice of deficiency;
• Pay the tax bill in full within 30 days of the issuance of a notice of deficiency; or
• Enter into a monthly payment plan agreement within 30 days of the issuance of the notice of deficiency.

If you fail to pay taxes due to negligence or an intentional disregard for the tax laws and rules (but there’s no intent to defraud), then there’s an additional penalty of 10% of the total tax deficiency amount, plus interest.

If you try to commit fraud to avoid paying the sales tax, then the penalty is 100% of the tax deficiency amount. For example, if you owe $10,000 in sales tax, the fraud penalty would be $10,000. The penalty doubles your bill, and then, interest makes it even higher. 

Any unpaid taxes, penalties, and interest not promptly paid when due could also result in a tax lien being placed on your personal and real property. A tax levy on your property is also possible.

A tax lien is a legal claim in property to secure the government’s ability to collect a tax debt. In contrast, a tax levy is the actual taking or selling of property to pay off a tax debt.

Voluntary Disclosure for Unfiled Sales Tax Returns

If you have not filed your sales tax returns or registered your company, you may qualify for Colorado's voluntary disclosure program. Typically, you must contact the state before they contact you if you want to qualify. When you apply, the state generally limits the lookback period to four years, and you get waived or reduced penalties. This program allows you to catch up without worrying too much about excessive penalties or other consequences. 

Amending a Colorado Sales Tax Return (Form DR 0100)

You can amend Colorado sales tax returns online. After signing in to your online DOR account, you’ll go to your home page and find your sales tax account. Then click on the “File/Amend and View Returns/Payments” link to access prior filings. 

On the right side, there should be a link that allows you to “View or Amend Return.” You will now be on the Sales Tax Return screen where you’ll see an “Amend” link toward the top of the screen. Follow the instructions and fill in the updated information, then click “OK.”

You may also need to make changes to all applicable retail locations or amend additional tax forms like the DR 0200 (Colrado Special District Sales Tax Return Supplement). Toward the end of the tax amendment process, you’ll end up at the ACH Debit payment screen. If you don’t owe additional taxes or wish to pay with a different payment method, click “No” at the “Would you like to make a payment?” prompt on the ACH payment screen. Then click “Next” to get to the Confirm and Submit screen, where you can officially submit your amended return. 

Finally, you’ll see a Confirmation screen, which allows you to pay the sales tax using a method other than ACH Debit. For example, you can follow the instructions to mail in a check. 

How to Claim a Refund After Amending

If you are due a refund after amending your sales tax return, you need to file Form DR 017 (Sellers/Retailers Claim for Refunds). You can file on paper or online. At the time of writing, the DOR is taking over a year to review refund requests, and generally, revenue officers request more information. To improve your chances of successfully requesting sales tax refunds, you may want to work with a tax professional. 

In the past, the CO DOR allowed you to roll overpayments from amended returns onto the next filing period. However, the agency changed this rule during the COVID pandemic. Now, you must request a refund if amending your return leads to an overpayment. However, you can use the overpayment line if you simply send in extra money with your tax return. This change has created excessive delays for many Colorado business owners who've requested refunds due to filing errors or other issues with their originally filed sales tax returns. 

It's also important to note that if you request a refund, your online sales tax account will show the requested refund as a credit. This can be very confusing. Even if a credit shows up on the home page of your account, you must still pay the amount due for the current filing period. 

For instance, say that you have requested $10,000 in refunds from tax year 2022, and you have a sales tax return for $1,000 due on April 20, 2023. You must pay the $1,000 bill. Although the credit appears on your online account, it is still pending. 

That said, if you see a credit for the tax return due on April 20, 2023. Then, you can apply that credit to your bill for that period, as long as the credit applies to the location for which you are filing. 

How to Avoid Sales Tax Penalties

The best way to avoid penalties is to file a sales tax return by the deadline and pay the full amount of sales tax due. But this can be a lot easier said than done, especially given the complex rules and requirements concerning not just a state sales tax, but local sales taxes, too. 

This is why it’s important to consult with a Colorado tax professional if you have any questions or need guidance on fulfilling your sales tax obligations. If you’re not ready to talk to a Colorado tax professional, there are online resources that may answer any questions you have concerning sales tax collection in Colorado.

One such resource is the Colorado Sales Tax Guide, which has detailed information about how sales taxes work in the state. Even if this guide can’t answer your questions, it can offer solid background information that can help you ask more pointed questions when you do speak with a tax professional or someone from the Colorado Department of Revenue.

Colorado Sales Tax Audit

As you might imagine, the Colorado Department of Revenue may audit your business or organization to ensure that you’re paying the proper amount of state sales taxes. Because of this, Colorado law requires retailers and other sales tax collecting organizations to keep at least three years’ worth of records and accounts relating to sales tax transactions.

The exact records required will vary based on the business, but there needs to be enough information to confirm the correct state sales tax amounts. Retailers located outside the state are also subject to sales tax audits by the Colorado Department of Revenue. Colorado retailers may also be subject to sales tax audits from localities, such as home-rule cities.

Special Rules for Online Sales Tax

A retailer not located in Colorado may still need to collect and pay Colorado sales taxes if they are deemed to be “doing business” in the state. A retailer is doing business in Colorado if it solicits business or receives orders from residents of Colorado. This sales tax requirement is subject to at least two exceptions.

1. The small retailer exception. A retailer that doesn’t have a physical location in the state is exempted from sales tax collecting requirements if their sales tax-eligible transactions for the current and prior year amount to less than $100,000.
2. If the online seller uses a marketplace facilitator. Then, it’s the marketplace facilitator that’s required to collect and pay the Colorado sales tax. A marketplace facilitator can include an Internet website or other electronic forum such as Etsy that enters into a contract with the seller to carry out a transaction in return for a fee or collects payments from the buyer and sends it to the seller. 

Special Sales Tax Disclosures to the Consumer

A Colorado retailer that collects a Colorado sales tax may not tell the consumer that the sales tax will be:

• Assumed by the retailer;
• Not added to the final selling price of the product sold; or
• Refunded to the consumer.

The retailer is also obligated to communicate the sales tax dollar amount to the consumer as a separate line item. In other words, the retailer may not simply tell the consumer what the sales tax rate is or include a single total amount on the transaction receipt or invoice. 

Do You Need Help With a Colorado Sale Tax Issue?

Dealing with Colorado sales taxes can be complicated. With so many exceptions, filing periods, and sales tax rates to keep track of, complying with Colorado state (and local) sales tax laws can seem overwhelming. Whether you’re facing an audit, trying to figure out how much sales tax to collect, or have missing sales tax returns, find a tax professional with experience resolving Colorado sales tax problems. 

Use TaxCure to search for a pro with Colorado-specific experience. Most of these professionals offer free consultations to help you decide what your next steps should be.