Colorado Consumer Use Tax
Have you ever filed a use tax return?
You Want Me To Collect What?
One of the most interesting parts of my job is trying to keep track of what taxes are due to be paid. Everyone knows about the income tax, even if you don't live in a state that collects it themselves. Similarly, most people know about sales tax, almost as constant. But consumer use? No one ever seems to know about use tax, so let's take a little time to talk about that, clear up some questions.
On and after January 1, 2001, there is imposed and shall be collected from every person in this state a tax or excise at the rate of two and ninety one-hundredths percent of storage or acquisition charges or costs for the privilege of storing, using, or consuming in this state any articles of tangible personal property purchased at retail. (C.R.S. 39-26-202)
The starting point for consumer use, in Colorado, is to understand that, unless the sale is exempt by statute, for instance if you are buying food for home consumption, every exchange of goods is taxable. For most of us this obligation is met at the time of the purchase by the vendor charging sales tax at the point of sale. But what if you don't get charged at the time, are you off the hook? The short answer is no. Read the statute above, a tax of 2.9% on the charges or costs of storing, using or consuming tangible personal property purchased at retail. So that iPad you bought on Amazon that wasn't taxed? You should be submitting a consumer use tax return (DR1306 for individuals, DR0252 for businesses) and sending a payment for the tax due.
Why is this in place? To prevent states from losing out on tax revenue. The use tax is a complement to the sales tax intended to ensure that buyers and sellers couldn't cheat their neighbor by offering goods tax-free. It's the same tax rate (sort of) that the buyer would pay, it's just a matter of who it gets paid to. Obviously the states run into a significant problem, namely, if as an individual you didn't pay sales tax up-front, you're unlikely to pay it to the state at the end of the year. What the state realizes is that most people don't keep track of what tax they paid unless it was a fairly large purchase. That's why the state focuses more on business tax rather than most individuals, and we expect that business's are going to be far more diligent about they purchases.
Now I mentioned that the tax rate is the same for sales and use tax. That's true at the state level, but county and city taxes, well, not so much. In Colorado, state collected counties can only collect use tax on certain items, specifically motor vehicles and building materials. Home rule cities and counties make their own rules on what sales they charge use tax on, but the rate will be that same as the sales tax. Maybe an example might help.
Let's say that I come to your dentist office for an audit. I'm going to look at all of your purchase invoices to ensure that you paid tax on everything. That TV you mounted to keep your patient occupied while you drill? Taxable. The drill you use? Taxable. The crown you placed in the patients mouth? Nontaxable (medical prosthetics are exempt.) On the TV and drill I'm going to see if you either paid sales tax at the time of purchase, or if you paid use tax instead. None of the above? I'm going to assess it and you'll end up paying penalties and interest on it.
Now you're asking yourself "how do I know what is taxable?" The easiest way is to visitwww.taxcolorado.com, the State of Colorado Department of Revenue website. All the information you need is right there, including all the forms and instructions to fulfill your tax obligations. I encourage you to read FYI Sales 5 General Information on Colorado State Taxes and Sales 10 Consumer Use Tax.