Colorado Use Tax
Published: April 28th, 2018
Colorado Use Tax: What Is It?
Both businesses and individuals must pay use tax on purchases when a seller did not collect sales tax, such as internet or out-of-state purchases where the vendor has no obligation to collect for the purchaser’s jurisdictions. In Colorado, home-rule cities add complexity and an increased obligation to self-assess, accrue, and remit use tax. Note: Internet purchases are not tax free—even if the vendor doesn’t collect sales tax, the purchaser likely owes use tax.
Consumer use tax is a complementary tax levied on the storage, use, or consumption of tangible personal property subject to sales tax when no sales tax was paid.
Does It Apply To Me?
Yes—nearly all businesses, including medical and other service providers, have use tax obligations. Jurisdictions aggressively audit for:
- Untaxed internet or out-of-state purchases
- Rate differentials when tax was charged at a lower rate than the purchaser’s home city (e.g., Broomfield’s 4.15% vs. Denver’s 3.62%)
- Contractors and service providers are considered end-users of materials they use; items exempt at the state level may still be taxable in home-rule cities such as Denver
How Can You Prepare?
It’s best to act before an audit:
- Ensure vendors know your true taxing jurisdiction—don’t rely on mailing addresses
- Review purchase invoices for correct tax rates
- Register and file a use tax return to start the statute of limitations and limit audit look-back periods
- Evaluate prior liabilities and consider Exposure Resolution options, such as anonymous Voluntary Disclosure Agreements
Some Problematic Areas:
- Internet or other out-of-state purchases that weren’t taxed
- Automotive rentals
- Freight, delivery, and transportation charges
- Dental and medical exemptions in home-rule cities
- Information services and software/data processing
- Telecommunications and maintenance agreements
- Use tax on rate differentials between jurisdictions
- Wrong jurisdiction/address issues (mailing vs. physical address)