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Colorado Home Rule Creates Nation’s Most Complicated Tax Rules

author photo of Keith Crichton

Welcome! This is my first entry for the new Local Sales Tax/Home Rule Issues blog category. As such, I thought I would outline issues to be addressed in future submissions. I also encourage you let me know about specific topics of interest.

Colorado is likely the most difficult state in the country for sales and use taxes because of its Home Rule cities. Under the State Constitution, about 65 cities in the state (and counting) qualify for Home Rule status, which allows them to levy and administer their own sales and use taxes and audits, and to define what is and is not taxable within their city limits.

As a result what is taxable on one side of a street may be exempt across the street (literally). And because the US Postal Service has not assigned zip codes that coincide with city, county and/or special district boundaries, one must determine the tax rate for every customer using only their street address. As one example, in a large business area near where I live, one zip code is used, but it covers portions of five cities and an unincorporated area.

This structure creates an almost endless list of complications for businesses in the state, not to mention out-of-state businesses selling to Colorado customers. In future submissions I will discuss issues relating to individual and multiple cities and industries. On occasion, I also will discuss issues related to Colorado state, county and/or special district taxes rather than just city taxes. This will be a diverse discussion, for reasons that will become apparent.

Before Colorado became a state in 1876, it was considered part of the “Wild West”. When it comes to sales and use taxes, “Wild West” remains an apt description.

If you have questions about CO Home Rule issues - or suggestions about topics you'd like to see covered in the Local Sales Tax / Home Rule Issues blog category - please feel free to send me an e-mail (Keith Crichton) - or post a comment below.

Other recent “Local Sales Tax / Home Rule Issues” posts by Keith Crichton, CPA:

NOTE: All blog content, comments, and participation subject to disclaimer at bottom of page.

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Note: Keith Crichton is no longer accepting new comments nor questions. While a new blogger will be taking over this category in the near future, please use the Site's SEARCH bar in the interim to locate other helpful information.

12 Responses to Colorado Home Rule Creates Nation’s Most Complicated Tax Rules

  • Posted by Ryan on September 18, 2014 3:30am:

    Hello Keith,
    Thanks for offering your time to help people understand these issues. It's hard to find the correct answers sometimes. I have a home based online site selling Hydroponic and GreenHouse supplies. I have an account that purchases bulk orders of supplies consisting of soil, nutrients, lighting, and garden accessories. They are used in a commercial growing operation that produces retail and medical marijuana. My business and my clients business are located in Silverthorne which is a home rule city. Do I charge my client sales tax on products that are being used, to produce a plant, which is then sold on the retail side of the business, where tax is collected from their customers, the end user? Is there a point when large orders cross over into a wholesale atmosphere or can retail and wholesale sales be one in the same? I'm slightly confused on all of this. Would it help protect me by having ALL my customers agree to a statement upon check out. Informing then that ultimately they are responsible for paying tax on the goods they purchase online. It's seems online businesses are being held responsible even with so many what ifs.
    Cheers
    Ryan

    • Posted by Author photo of Keith CrichtonKeith Crichton on September 24, 2014 5:56am:

      Hi Ryan,
      In Colorado the retail sale of tangible personal property is generally subject to sales taxes by both the state and local jurisdictions.
      Your transaction would be considered a retail sale. If your product became a component part of your customer’s manufactured product, or was among a long list of items exempted from sales taxes, then sales taxes might not need to be collected, otherwise a manufacturer must pay sales taxes on the machinery and equipment used in his business. In your case your customer is simply using your product in his growing operation, and therefore the sale would be taxable unless there is a specific exemption allowed for the product sold. Some products used for agricultural purposes are exempt, but I doubt that his operation would be considered agricultural.
      You asked about large orders. The size of an order, in and of itself, is almost never a factor determining the taxability of the transaction. Also a sale is either retail (to an end user) or wholesale (to a manufacturer incorporating the product into his, or the purchaser buying the product for resale), but not both. However a given transaction can include elements of both, meaning that some items are purchased for resale, and some are not, for example.
      Finally under Colorado law the seller must collect sales taxes for the jurisdictions which the seller has in common with the purchaser. The seller cannot pass the tax payment responsibility on to the buyer. In your case, you must collect Colorado, Summit County, Silverthorne and other local sales taxes that the buyer’s location has in common with your location. Go to http://taxco.g1.com and enter the buyer’s address, print the detail report which shows the breakdown of the total tax rate, and do the same for your address. Then compare the two reports to see which tax jurisdictions you have in common with your customer.
      If you were to make a sale to someone in Steamboat Springs, for example, you would only collect Colorado sales taxes because that is the only jurisdiction you have in common with them (assuming you ship the product by common carrier such as FedEx). On the other hand if you made a sale to someone outside of Colorado, and shipped by common carrier, you would not need to collect any taxes because I assume your business operates only in Silverthorne.
      This demonstrates perfectly why Colorado is so difficult to deal with, and why businesses need to get the advice of someone who understands the intricacies of this state.
      Good luck!

  • Posted by KR on May 5, 2014 5:54am:

    I would like to see some definitive description of the exemption requirements when dealing with exempt customers in various cities in Colorado.

    • Posted by Author photo of Keith CrichtonKeith Crichton on May 7, 2014 7:53am:

      I think you are asking about the documentation that a vendor is required to obtain from an exempt customer. These rules are different in each home rule city, which may also be different from statutory cities governed by state law. This is no different than any other aspect of the sales tax structure in Colorado, which is why it is so important to seek the advice of a professional who is familiar with Colorado taxes. In many cases, however, the vendor is required to obtain and keep a copy of an exempt customer's city and state exempt sales tax license. For repeat customers the vendor can simply get one copy per year that is retained in a central file.

  • Posted by Matt on January 3, 2014 1:50am:

    Has anyone compiled a list of sales tax exemptions by "home-rule" cities? If not, I assume each city's code must be reviewed for applicable exemptions from sales tax?

    • Posted by Author photo of Keith CrichtonKeith Crichton on February 4, 2014 5:17am:

      Matt, I don't know of anything, so I checked with some other professionals and government officials and everyone had the same answer. One should check each city's code, but even that is often only a beginning point. Too often the exemptions are whatever an auditor decides they should be. A perfect example came up a few years ago when a Denver auditor decided that the cooking oil supplied to restaurants was not exempt because it did not become part of the food served. (Tell that to your cardiologist.) The city council finally stepped in and overruled the City Manager so that a large number of restaurants did not move out of town.
      This just highlights the challenges of Colorado's sales tax structure, and the importance of working with a professional knowledgeable about Colorado laws.

  • Posted by Kelsey on July 19, 2013 12:47am:

    Hi Keith, Thanks for bringing the subject up regarding Colorado and the home rule cities. Another topic that could be delved into is the taxation of online services and sales and how the home rule cities and/or Colorado State tax these transactions; without the benefit of brick and mortar retail locations. Specifically with online sales of top up minutes on prepaid phone cards and sales of digital content. Since the Fair Marketplace Act may become a reality soon, the topic of on-line sales can actually be open for discussion in all states and home rule cities.

  • Posted by Author photo of Susan JaegerSusan Jaeger on June 26, 2013 4:39am:

    Hey Nathan - thank you for your comment. Just to clarify - are you interested in the cloud issue - specific to CO? If so - I'm sure Keith Crichton will consider your request...
    If however you are looking for cloud computing content in general - don't miss the new "Cloud, Software & Digital" category in our new INDUSTRY blog - featuring content by Carolynn Iafrate Kranz - a recognized specialist in that area.
    http://www.salestaxsupport.com/blogs/industry/cloud-software-digital-tax/

    • Posted by Nathan on July 3, 2013 5:52am:

      I'm looking for both. I have been reading Carolynn's content, but wanted to see if there would also be blogs dealing specifically with Colorado.

      • Posted by Author photo of Keith CrichtonKeith Crichton on July 9, 2013 8:15am:

        Nathan, I will certainly give that some consideration. Are there any specific cities in which you have an interest? If Denver is one, I can already tell you that they tax almost everything that is electronic, other than a service that provides or creates original results that did not previously exist in the form requested. Storage and all subscription services do not fall under that definition.

        • Posted by Nathan on August 1, 2013 2:22am:

          No, there are no specific cities, just the home ruled cities in general.

  • Posted by Nathan on June 26, 2013 4:10am:

    Topics that I would like to see covered are the various cloud computing categories, including SAAS (Software as a service) and PAAS (Platform as a service).

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