Sales Tax Obligations of Sellers in Colorado

April 13, 2006

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The following items should help to answer the most frequently asked questions concerning sellers and sales and use tax issues.

Procedure for accepting resale certificates. Although exemption certificates are required and the "multistate" exemption certificate is accepted, there are no rules prescribing the form of the certificates. When a purchaser states that a purchase is for resale, the seller must establish that the sale is tax exempt and must keep records to that effect. It is the seller's duty to collect the tax unless the seller receives satisfactory proof that the sale is exempt.

Procedure for accepting blanket certificates. The state of Colorado does not specifically address whether blanket certificates can be used for multiple purchases. A blanket certificate will relieve the burden of executing a separate certificate for each individual tax-exempt purchase as long as there is no significant change in the operations. A blanket certificate describes the general nature of the property purchased for resale and usually remains in force until revoked in writing.

As long as there is no prescribed form, if the seller has all the information that is required for a resale certificate, that should satisfy the Colorado Department of Revenue.

Sales and use tax liability for out-of-state mail order and catalogue retailers. Colorado has a statute that specifically taxes out-of-state mail order and catalogue sellers. However, you will be responsible for paying this tax only if you have physical presence within Colorado. To determine if you have physical presence, ask yourself the following:

Do I have retail facilities, a warehouse or any office space in Colorado? Maintaining retail or warehouse facilities will give you physical presence. Also, having an office for employees, even for business activities unrelated to mail order sales, will give you physical presence.
Do my employees or I enter Colorado for purposes of taking and transmitting orders from Colorado? If your employee or independent contractor goes into Colorado to take or transmit orders your business may have physical presence in Colorado. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence.
Do my delivery vehicles frequently enter Colorado for purposes of delivering property? Frequent deliveries in Colorado by your trucks will give you physical presence in Colorado.

Sales tax "bracket system." Several tax bracket schedules have been issued by the Colorado Department of Revenue. These should be provided to you when you are registered to collect sales and use tax in the state of Colorado.

Absorbing the tax — using a "no sales tax" advertising strategy to drum up business. In Colorado a retailer or an agent may not advertise that the retailer will assume or absorb any part of the sales or use tax due. This includes advertising that the tax will not be added to the selling price of the property sold, or that the tax, having been added to the selling price, will be refunded.

Claiming refund for excess tax payments. When a seller disputes a purchaser's claim that a sale is exempt from tax, the purchaser must pay the tax to the seller and then apply to Colorado for a refund of the tax paid. Applications for refund must be made within 60 days after the date of purchase, be supported by the purchaser's affidavit, be accompanied by the original invoice or sales receipt issued by the seller. A refund is also allowed when the person establishes that the tax was paid by another person and not refunded to that person and that the person entitled to the exemption paid or reimbursed the purchaser for tax paid. The application for the refund must be made within three years after the date of purchase.