Colorado Sales Tax Small Business Help Guide
Sales Tax in Colorado
Let me say from the outset that I am in no way an expert on taxes, accounting, or sales tax. However, I have had to figure this out for my own small business operating here in Colorado, and I figured my simplified understanding of all this could be helpful to somebody else! I've learned how to apply for a trade name and a sales tax license, how to charge sales tax for different jurisdictions in Colorado, and how and where to submit the sales tax that I've collected.
My business is primarily an online one, with a few local sales, so I really haven't had to collect an outrageous quantity of sales tax. However, I have had to figure out what to charge each of my customers, because they all live in different cities, counties, and "special districts." Hope this helps you figure out your Colorado Sales Tax questions! And please don't make me liable for any errors on your tax forms or submissions. I am not a professional, just someone who wants to write about what she's learned.
Is My Small Home Business Required to Charge Sales Tax?
According to the Colorado Government Colorado Sales Tax information page, a small home business is required to charge sales tax to its customers when your total annual sales are over $1000. But, don't breathe a sigh of relief yet. Here is a little addendum to keep you aware of your responsibility: "However, you must collect all applicable sales taxes and file a “Combined Annual Retail Sales Tax Return,” DR0100A, at the end of each calendar year." You will also not be able to purchase inventory or supplies at wholesale prices without a Colorado Sales Tax license.
1. File a Trade Name with the Secretary of State
Why would anybody want a sales tax license in Colorado? Well, for one, it's required if you want to purchase anything at wholesale rates, which you are probably going to want to do if you are planning on reselling anything at a profit. Also, after you have over $1000 of sales in a year, you are required to get a sales tax license. The RTD district needs your money, because not everybody has a nice work-at-home small business like you do. The county needs your money because of the bums who litter on the trails in your county parks. And the state needs your money because, well, they're the state. Anyway-- enough tax ranting. You want to know how to operate a small business legally in Colorado and that involves knowing how and when you have to charge, and pay, sales tax.
Apply for a trade name with the Secretary of State by going to this page: File a Trade Name.
If you are a small business, you will probably want to file for a sole proprietorship, so click on "individual," which takes you here: Statement of Trade Name for an Individual. Applying for a trade name will cost you $20.
The Sales Tax License (and ID Number) Application Fee
If first day of sales is:
January to June on even–numbered years (ex. 2010, 2012, 2014), you will pay $16.00
July to December on even–numbered years (ex. 2010, 2012, 2014), you will pay $12.00
January to June on odd–numbered years (ex. 2011, 2013, 2015), you will pay $8.00
July to December on odd–numbered years (ex. 2011, 2013, 2015), you will pay $4.00
2. How to Apply for a Sales Tax Id Number
Where do you do this? On Form CR0100. If you are only needing to file the Sales Tax portion alone (basically--if you aren't going to be withholding wages for any employees) you will only need to fill out sections A, B, C, E, and F (that's right-- you can skip D. "D" for "Delightful!"). The link above is the very form itself, which you can type on and then print out to send in with a postage stamp (for a several-weeks response time) or hand in (for an immediate response time). You will need to submit it to the Colorado Department of Revenue on Sherman Street. This will cost you anywhere from $4 to $16, depending on which half of the year you apply, and whether you apply in an odd or even year. See the blue box on the right for specific details. Don't try to finagle the month you apply in order to pay less-- I believe it will pro-rate eventually, and you should just get started on your business.
You will also have to include a $50 deposit for sales tax, which will be refunded to you when you submit at least $50 of sales tax that you collect from your customers. Don't forget to include the check with your application! Just stay in business long enough to get your sales tax deposit refunded.
Feel free to look around for tutorials on how to fill out this form if you feel incompetent. At the very least, you can read the instructions for this form on Publication CR0101 (anything with 101 after it should be easy, right?). All I did was read the instructions, and it didn't seem difficult to fill out, but then again, I don't have a complicated life or a complicated business. My guess is that you don't either. Just make sure that you do read through the instructions to be certain that you aren't missing anything or filling information in the wrong fields.
After you fill it out, make several copies to keep on file for yourself.
Take a break and relieve some stress
3. Using Your Sales Tax ID Number
Watch your mailbox. You should receive a Sales Tax Id Number on a blue slip. After you receive it, make several copies so that there is no chance of losing your number. Take a copy of your license to any wholesaler you would like to purchase supplies or products from, as they will need this to set up a wholesaler account. When you purchase from a wholesaler, you will not be charged sales tax because the assumption is that you will charge your customers the necessary sales tax.
What would you rather be doing right now?
4. What Sales Tax Do I Charge?
Once you are ready to sell your products or services to your customers, you will need to figure out what sales tax rate to charge them. This will be different for a brick-and-mortar store that only sells on site, a store that makes deliveries, and an online-only business that ships to customers.
But the basic method of figuring out what sales tax to charge is the same. First, you will not need to charge sales tax to any customers located outside of Colorado if you are shipping or delivering to their doorstep. This is great news for online businesses like Ebay, Etsy, and Amazon!
If your store is located in Colorado, or if you sell to another Colorado resident, you do need to figure out what sales tax to charge them. You will automatically have to charge your Colorado buyer a 2.9% tax rate. You may also have to charge them additional rates for the city, county, and special districts that they live in that are the same as your own.
To look up the sales tax required a particular city and county, you will need to go here: Revenue Online--City and County Tax Rates. You are required to charge only the sales tax in the jurisdictions that overlap your own. For example, if you are a store or online business located in Arapahoe County, in the City of Denver, in the State of Colorado, then you will need to charge the sales tax for Arapahoe County only if your customer lives in Arapahoe County, the sales tax for the city of Denver only if your customer lives in Denver, and the Colorado sales tax if your customer lives in Colorado. You will also need to check to see if you are in any "special districts" (such as the Stadium district, the Cultural Arts district, and the RTD district), and you will have to charge your customer that tax if they live in the same special districts as you. Basically, you only have to charge them the tax of the districts that you have in common with them.
To charge tax, you will have to do a bit of simple math. Convert the tax rate percentage to a decimal by moving the decimal point two spaces to the left. For example, the Colorado tax rate of 2.9% is .0029. Then, multiply that decimal by the amount you charged your customer for the purchase. The resulting answer is what you charge your customer in addition to what they pay for your product.
Note: some cities in Colorado are "home rule cities" and they collect their own tax instead of having the state collect it for them. You can go here to find out more about this and what you are required to do if you are conducting business in a home-rule city.
Why a Sales Tax "RETURN"?
Return. For something to re-turn, it has to have come from that place originally. Example, "from dust we came, to dust we shall return." However, our honestly-earned greenbacks have not come from the Colorado government, but from our loyal and satisfied customers, and ultimately, from God. There is only ONE sovereign controller of all business transactions, only One of whom we can say we receive our profit. When we tithe, we RETURN some of our profit to the Lord, in obedience to His tithe law in the Septuagint, as well as out of gratitude for Him blessing the business in the first place.
The same cannot be said of the government. From the government it came, to the government it shall return? I don't think so.
5. Submit your Sales Tax to the Colorado Department of Revenue
As the year goes by and the sales come in, keep a good account of what sales tax you charge your customers and what districts they live in if you are an online or delivery company. You will have to tally up the totals for each of your districts on your sales tax submission form, so that is why it is of essence to keep track of what you charged for what districts.
When are you required to submit the sales tax you have collected? Sales tax is due on the 20th of the month after your taxing period ends. So, that means you have to figure out when your taxing period ends. Well, the Department of Revenue "How to File" page says that you are only required to submit your collected tax annually if you collect under $15 each month. If there is a month that you collect over $15 but under $300, you are required to submit your collected tax on a quarterly basis. If you collect over $300 a month, you must submit your sales tax every month.
How do you submit your sales tax? With this little form: Colorado Retail Sales Tax Return. It really is little. Don't worry. How to fill it out? Read the directions, and fill in the spaces for each jurisdiction that you collected tax for (see, this is why you kept those records!). If there are jurisdictions you were not required to collect tax for, put N/A in that column. You will end up needing to know the total amount of sales for that time period, as well as how much (in dollars) was bought by people living in your same jurisdictions, what sales tax rates are applicable for your business location, and how much you charged your customers for doing business with you in the same taxing jurisdiction as you. Don't forget to round to the nearest dollar whenever you write a money amount on here. Under .50 rounds down to zero, and .50 and over rounds to 1.00.
One thing I was confused by was the RTD/FD/CD service fee rate. It actually is a deduction from what you have to pay, if you are submitting your sales tax on time. This is 2.22% (.0222) of the sales tax that you were going to submit, subtracted from the total you were going to submit, meaning you don't have to submit as much sales tax if you are an on-time kind-of-a-person. Hope that helps. (There's also a fee for if you are NOT submitting it on time, but we won't go into that right now.)
So Now You're a Colorado Sales Tax Whiz!
If I have any of this wrong, please let me know! I am going to continue submitting sales tax in this fashion until someone informs me to do it otherwise, but now you have the benefit of my reading (the fine print and legalese, I might add) and my study, which has bequeathed you with the necessary know-how to live at peace with all men, and the government in particular.