Nestled in the heart of the Rocky Mountains, the rugged, primordial beauty of Colorado has inspired countless musicians over the years – from Willie Nelson, “The bright lights of Denver shining like ten thousand jewels in the sky,” to Justin Bieber, “You are my rock, my Colorado.”
Unfortunately, if your company operates in The Centennial State, your sales tax duties are far from uncomplicated. Colorado has a patchwork of 756 specific regions with varying sales tax rates and foundations created by 294 taxing jurisdictions with overlapping boundaries.
The basics of sales tax in Colorado (it’s not so basic)
Staying compliant with Colorado sales tax rules involves:
- Registering for a Sales Tax License
- Collecting Sales Tax
- Filing Sales Tax Returns
- Remitting Sales Tax
- Maintaining Records
- Staying Informed
- Complying with Local Jurisdictions
- Understanding Nexus
The last two on this list are why staying on the right side of Colorado’s sales tax laws is anything but basic.
Who collects sales tax in Colorado?
In Colorado, sales tax collection is divided between the state and its home-rule cities. While the Colorado Department of Revenue collects state and some local sales taxes, over 70 home-rule municipalities in Colorado administer and manage their taxes. This dual system requires businesses to navigate a complex web of tax collection processes, depending on their customers’ locations.
Navigating Colorado’s 70+ home-rule jurisdictions
Staying compliant with Colorado sales tax rules can be more challenging than trekking through the Rockies without a map. That’s down to home-rule jurisdictions.
Approximately 100 home-rule cities and towns have the autonomy to determine their rates and rules, including tax exemptions and what is taxable, within state guidelines.
Over 70 of these home-rule cities administer their taxes independently. Suppose you’re a SaaS company enjoying wild success in Colorado. This means you must register with local governments in +70 jurisdictions and keep track of different district sales tax rates and rules to ensure you’re fulfilling your sales tax collection duties.
Understanding Colorado sales tax nexus rules
In Colorado, a nexus is the connection a business has with the state that requires it to collect and remit sales tax. This nexus can be established through physical presence, economic activity, affiliate relationships, click-through referrals, or through operating
on a marketplace platform.
Physical nexus
Physical nexus is the most straightforward type and generally obligates a business to collect and remit sales tax. This is established if your company has a physical presence in Colorado, such as a retail store, warehouse, or office. It’s worth remembering that this applies to even a representative or employee working in Colorado if you’re an international or out-of-state company.
Economic nexus
This is determined based on your level of economic activity in Colorado. Typically, this means reaching a threshold of $100,000 in annual sales or 200 transactions. Even if a business your business is in Singapore with no physical presence in Colorado, surpassing this sales threshold creates a tax obligation.
Affiliate nexus
This is triggered when your business has ties to another company or individual within the state that helps you establish or maintain a market in Colorado. This could be through affiliates who direct traffic to the business (such as through links on a website) or other business partnerships that contribute to the company’s economic presence in the state.
Click-through nexus
Colorado online sales tax rules for retailers are similar to affiliate nexus. Click-through nexus is established when your business generates sales through referrals from a Colorado-based entity (like a website or a blog); if your firm receives over $10,000 of revenue in the preceding 12 months from a website that “clicks-through” to its website, well done! But unfortunately, your growth has triggered click-through nexus.
Marketplace nexus
This refers to the obligation of marketplace facilitators (like Amazon or eBay) to collect and remit sales tax for sellers operating on their platforms. It simplifies individual sellers’ tax obligations but places the marketplace provider’s responsibility.
Income tax nexus:
In Colorado, this income tax nexus is determined by factors such as physical presence, payroll, property, or sales in the state. Essentially, it’s based on whether your company has a substantial presence or conducts significant economic activities in Colorado.
All domestic corporations and foreign corporations are subject to Colorado’s income tax unless protected by P.L. 86-272 – a federal statute prohibiting states from imposing a net income tax on out-of-state businesses If their activities in the state are confined to soliciting orders for tangible personal property sales, with approval and fulfillment occurring outside the state.
Recent sales tax developments in Colorado
Recent changes in Colorado’s sales tax regulations have made compliance easier in some ways, such as the availability of the Sales and Use Tax Simplification (SUTS) Lookup Tool, which is now available to help businesses navigate Colorado’s complex sales tax regulations.
The changes in 2023 to Colorado’s tax system represent ongoing efforts to modernize and simplify it, balancing ease of management for businesses and taxpayers with effective revenue collection for governments:
- Local Tax Rate Changes: Effective July 1, 2023, new sales and use tax rate changes took effect in four local jurisdictions in Colorado. However, there were no statewide sales/use tax changes then. These local changes are part of the annual updates documented by the Colorado Department of Revenue.
- New Tax Credits: On June 7, 2023, Colorado enacted new tax credits. This included an increase in the earned income tax credit eligible to be received within the state and new federal adjusted gross income thresholds. Also, a new nonrefundable income tax credit was created for taxpaying employers who contribute to an employee’s down payment and/or closing costs on the purchase of a primary residence.
- Regulations on Retail Delivery Fees: The Colorado Department of Revenue adopted new rules on retail delivery fees on February 14, 2023. This regulation affects SaaS companies that sell tangible personal property and make deliveries in Colorado. To avoid penalties, you must collect and remit the retail delivery fees to the Department of Revenue.
However, on May 4, 2023, Colorado passed new legislation exempting businesses with retail sales under $500,000 from the state’s 27-cent Retail Delivery Fee (RDF) in the previous year. Additionally, the law permits sellers and retailers to pay the RDF on behalf of purchasers. It’s great news for small businesses, including SaaS companies, with less than $500,000 in annual retail sales in Colorado.
If you’d like to know more about initiatives to reform and simplify Colorado’s excessively complex sales and use tax system, visit Simplify Colorado Sales Tax.
Complyt makes sales tax compliance simple, yes, even in Colorado
The changes in 2023 to Colorado’s tax system represent ongoing efforts to modernize and simplify it, balancing ease of management for businesses and taxpayers and ensuring adequate revenue collection for state and local governments.
However, staying compliant is still no walk in the park, especially for SaaS companies, e-commerce sellers, and remote retailers, who must remain compliant once they have triggered nexus. Tackling Colorado’s sales tax system can be as taxing as navigating the Rockies’ complex trails – but Complyt transforms this ascent into a leisurely dashboard stroll.
Put monitoring & registering on autopilot
Receive real-time updates on your company’s economic and physical nexus responsibilities. With this feature, your business can register across the necessary states, guaranteeing Complyt compliance with sales tax regulations.
Calculating sales tax by address couldn’t be simpler
Complyt streamlines the process of calculating Colorado sales tax by address, offering real-time precision in determining state and local taxes. In Colorado’s varied tax environment, this feature simplifies meeting the precise tax requirements for each business location.
Automated filing & remitting
Meet tax deadlines and comply with the latest tax rates and regulations by automating your filing schedule and facilitating direct payments to tax authorities, no matter how often Colorado’s tax environment changes.
Always be audit-ready with detailed record-keeping
Complyt lets you manage and store all your reports, certifications, and exemptions in an accessible, centralized location – ensuring you’re always more than prepared for an audit.
Complyt makes sales tax compliance as smooth as a ski run in Aspen.
