Sales and Use Taxes in Colorado

April 13, 2006

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In Colorado, the state sales and use taxes are imposed at the rate of 2.9 percent of the tax base. The total sales or use tax rate imposed by the state and all local governments may not exceed 6.9 percent. The retail sales tax applies to the gross receipts from all of the following activities:

all retail sales of tangible personal property
retail sales involving exchange of property
intrastate telephone and telegraph service
gas and electric service to consumers, and sales of steam
meals and cover charges furnished at any place where meals are regularly served to the public
charges for rooms or accommodations

Tax exempt items. Colorado includes many specific items that are exempt from sales tax. Examples of exempt items are grocery store food and prescription medication. You'll want to check and see if you or any items you sell are exempt from the sales tax.

Responsibility for paying sales tax. In Colorado a retailer is responsible for collecting and remitting the sales tax. The retailer has the burden of showing that a sale is exempt from tax. The retailer must have sufficient records to demonstrate the validity of a claimed exempt sale. The tax is imposed on the purchaser, but if the transaction involves a licensed vendor it is the vendor's duty to add the tax to the sales price and remit the tax to the state. If no licensed vendor is involved in the transaction or the vendor fails to collect the tax, the purchaser must pay the tax directly to the Department of Revenue. Also, if the vendor fails to collect the tax from the purchaser, the Department of Revenue may assess the tax due against the vendor or the purchaser at its option.

Use tax. The Colorado use tax applies to the privilege of storing, using, or consuming tangible personal property in Colorado that has been purchased at retail and is supplementary to the sales tax. The sales tax and use tax are complementary taxes — the use tax is not imposed on sales that are subject to the sales tax.

Responsibility for collecting use tax. In Colorado the use tax is imposed on persons storing, using, or consuming in Colorado tangible personal property purchased at retail. The obligation for payment of the tax is on the user whether the tax is called a "sales tax" or a "use tax."

Obtaining tax permits in Colorado. Every retailer must obtain a license biennially for each place of business from the Colorado State Treasurer. The initial license fee is $16 plus a one-time-only $50 deposit that is allowed as a credit against the sales tax to be remitted. An additional $16 fee must be paid every two years.

Leases. In Colorado, the right to a continuous possession or use of tangible personal property for three years or less under a lease or contract is exempt from the sales tax. It is exempt if the lessor has paid a sales or use tax on such property at the time of its acquisition. However, a lessor of tangible personal property that will be leased for three years or less may acquire the property without payment of the sales tax if the lessor agrees to collect sales tax on all lease payments. When the lease is for more than three years and such transfer would be taxable if it were an outright sale, tax must be paid on the lease or rental payments received. The state sales tax rate is 3 percent of monthly payments made.

The following discussions address additional sales and use tax issues that many small business owners face in Colorado: