COLORADO BUSINESS CONSUMER’S USE TAX

What Is It?

Both businesses and individuals are to pay use tax upon purchases when a seller did not collect sales tax. Purchases made over the Internet or from out-of-state vendors that don’t have an obligation to collect sales tax for the purchaser’s state or local jurisdictions are common examples of when use tax may be owed. In Colorado, home-rule cities add to the complexity and increased obligation to self-assess, accrue and remit use tax. Note: Internet purchases are not tax free. The vendor may not have an obligation to collect sales tax, but the purchaser will likely still owe use tax.

Consumer use tax is often called a complementary tax. Use tax is levied upon the storage, use or consumption of tangible personal property subject to sales tax when no sales tax was paid. If sales tax wasn’t charged, use tax is generally due.

Does It Apply To Me?

Yes, nearly all businesses, including medical practices and other service businesses, have use tax obligations. Use tax is an area that money-hungry states and local jurisdictions are aggressively auditing. In addition to making internet or out of state purchases, businesses in Colorado are at risk of audit for use tax on the rate differential between home-rule cities. If you make a purchase in another city whose rate is lower than your city, use tax is due on the rate difference. For example, if your business in in Broomfield with a local rate: 4.15%) and you buy a computer, office furniture and supplies for $6000 from a vendor in Denver with a local rate of 3.62%, you would owe $31.80(.53% on $6000) in use tax to Broomfield.

Contractors and service providers are often considered the end-users of the goods they purchase and use in the performance of their services, even on jobs for tax exempt of charitable organizations! Colorado State may exempt such, but some home-rule cities such as Denver do not. Sales to Denver itself are not exempt!

With the many differences in taxability at the Colorado State and state-collected level vs. home-rule cities, there are increased risks of use tax obligations. Vendors may be registered with the State, but not your home-rule city. They might not properly account for the differences in taxability such as tax on delivery charges or other services, downloaded, ASP or cloud computing software, food for business use, medical devices and even some vaccinations as a few examples. It is still the purchaser’s job to see that tax was properly charged and accrue use tax where shortages occur.

Colorado State-collected cities and counties have very limited use tax while home-rule cities generally broadly tax goods and some services. The Colorado Department of Revenue collects Regional Transportation District/Scientific and Cultural Facilities District (RTD/CD) sales and use tax as well as the Rural Transportation Authority (RTA) sales and use tax, but it does not administer or collect county or city use tax. Local use tax is paid directly to the taxing authority to which it is owed.

How can you prepare?

It’s best to be proactive and to identify and resolve issues before an auditor contacts you. Voluntary Disclosure Agreements are no longer available once you’ve been contacted. Make sure vendors know your true city/ taxing jurisdiction and don’t rely on your mailing address. Review purchase invoices for sales tax at the proper rate. Register and file a return to start the statute of limitations and limit the audit look-back period. Caution: This should be done after evaluating prior liabilities and determining Exposure Resolution options such as anonymous Voluntary Disclosure.

Some Problematic Areas:

• Internet or other out-of-state purchases that weren’t taxed
• Differences between Denver’s and CO State on taxation of:
  • Automotive Rentals
  • Freight, Delivery and Transportation
  • Dental and Medical Exemptions
  • Information Services
  • Maintenance Agreements
  • Manufacturing and Fabrication
  • Software/ Data Processing
  • Telecommunications
• Coffee and related food products sold for office or commercial establishment use (Not for personal home consumption)
• Use Tax on Rate Differentials (When tax was charged at a rate lower than your city’s rate)
• Wrong jurisdiction/ address issues (Wrong Rates and Jurisdictions – Mailing addresses often don’t reflect actual city)

The good news is that remedies are often available when you’ve discovered obligations before auditors contact you. We can often help even if you’re already under audit.

To learn more about how we can help with these or the following issues, please Contact us today:

• Assistance with proactive minimization of prior period sales/use tax liabilities
• Help with nexus questions and issues
• Other sales and use tax related questions

What are your priority issues and when do you want them resolved?

Please click here for more Sales Tax Tips. For additional insight on common sales tax concerns, please see the Did You Know? section of our website.

* This tip is intended to provide general information only and is not to be considered as a substitute for professional advice.