How to Register for a Sales Tax Permit in Colorado

How often have you found yourself working overtime to submit work before a tight deadline? How often have you looked at a task and felt like you have been asked to pick up where your superiors couldn’t be bothered to continue? Have you ever thought that, if you had the chance, you would have done things differently? If the answer to these questions are yes, you might be ready to consider the option of starting your own business.

This idea must have crossed your mind before, but the procedure of registering and the complexity of running a business might have put you off. But, are things as bad as some make it out to be? Have you ever looked into the positives and negatives of running a business? Yes, the registration process can be complex if you are not familiar with the steps you need to take, but this is an obstacle that can be negotiated.

Running a business can only be as hard as you make it to be. If you are not organized, you will struggle, but if you keep things tight and do everything properly, you will be able to enjoy the many advantages of being your own boss. For example, you never have to stay late if you don’t want to. You will be able to enjoy the flexibility of coming to work and go home when you decide. In other terms, you will have more spare time to spend with your family, friends or to simply enjoy something you are passionate about.

Speaking about passions, you could turn those passions into a business. There is nothing better than doing something you love. This means you will enjoy work more and will be motivated to achieve more. It also means you will see something you created and love grow from the ground up. In addition, you will also be able to choose who you work with and who should be part of your team and make sure your business is in safe hands even when you are not around.

But to achieve this, there are some steps you have to take, and of course, some hard work that needs to be done. This guide will point you to the steps you should take to prepare before registering your business as well as the steps you need to take to legally register your business and obtain a sales tax in the state of Colorado.

Preparing to Start a Business in Colorado

Before you start compiling and submitting paperwork to legally register your business in the state of Colorado, there is some preparation on the business end of things you have to do. While we have said that you should do something you love and something you are passionate about, the market conditions might not allow you to start there. This is why it is essential to do market research and find out what the conditions are, where the demand is high and where there is an oversupply.

This is an aspect you can put your previous experience to work as well. Remember all the days you spent as an employee, and use the skills you learned to your advantage. Researching the market will show you if your desired target is somewhere you could start or if the competition poses too much of a risk. It could also unveil some market gaps, which are usually considered the best starting points for new entrepreneurs. It allows you to cover an existing demand for a product in a niche market close to your preferred market. It also allows you to start without much pressure and gather experience as a business owner before growing and expanding your company.

The market research is not only useful for discovering niche segments, it is actually an essential part of a business plan you should always develop prior to registering your business with the relevant authorities. This will serve as your checklist for the set-up and registration process. It is strongly advised to consult a professional when developing your business plan because it should include everything from your business description, target market and customers to financial predictions such as predicted expenses, costs, revenue, and profit. In essence, once you have considered all the aspects and figures, the research for the business plan will show whether your business model is sustainable. All this is valuable information not only for you but also for the financial institutions such as a bank or any other investment entities that you might approach to fund your business.

Once you have completed your market research and found the target market and customers to supply, it is time to take the next step. which is to legally register your business with the Colorado authorities.

Registering a New Business in Colorado

The state of Colorado requires every business to register with the Secretary of State, which will be your starting point in the business registration process. The first step is to determine the legal structure of your company.

When starting a business, especially if you plan on being the sole owner and employee, a sole proprietorship is the legal structure to look at. There are no legal requirements when it comes to setting up a sole proprietorship, and it is best suited for those who plan on going completely alone. It is the most common and the most simple type of legal structure and it can be operated under the owner’s name. It can also be operated under a registered trade name. The disadvantage of the sole proprietorship is the fact that there is no legal distinction between the owner and the business, meaning the owner is liable for all the debts of the company.

The next option is to register a general partnership, in case two or more individuals join up to conduct business. According to the Secretary of State, general partnerships are urged to prepare a written agreement outlining the business structure and responsibilities of each of the partners.

Next on the Colorado list are corporations. These are entities that exist separately from their owners. Corporations are owned by shareholders, who elect a board of directors to run them. Corporations offer significant liability protection to its owners. Limited Liability Companies take the liability protection from corporations and combine it with partnerships concepts for tax purposes, taking the best of both worlds.

Apart from sole proprietorships and general partnership, all other legal structures must be registered with the Secretary of State, and all the filings can be completed online. You will also find the link to register a trade name for your business. The first step in that process is to check if the name you’d like to operate under is available. According to the Colorado Secretary of State, trade names, such as sole proprietorships and general partnerships are not protected, meaning anyone can register any trade name, even if it has been registered previously.

Before moving on to the next step in the registration process, we have to note that some businesses require specific licenses and permits. There is no such thing as a general business license in the state of Colorado. However, your business might require a specific permit, depending on your specific activity. Access the Colorado Department of Regulatory Agencies to determine whether you require any special permits. Once you have obtained all the information and filed for relevant permits, it is time to tackle the most complex segment of the registration process: tax permits.

Colorado Sales Tax Permit

This part of the registration process is crucial as you always want to be on top of your tax requirements. While you can register for a sales tax permit as a sole proprietor using your social security number (SSC), it is advisable to file for a Federal Employer Identification Number (EIN) in order to reduce the possibility of identity theft and similar issues. The EIN is obtained through the Internal Revenue Service (IRS) and you can apply for your EIN online.

With the IRS registration complete and your EIN obtained, it is time to turn to the Colorado Department of Revenue in order to determine your state tax requirements. Let’s say you plan on buying merchandise by the pallet to resell on e-commerce platforms such as Amazon. You will have to verify that you actually require registration with the Department of Revenue. This process starts by determining if you have a sales tax nexus in the state. This is a significant presence in the state reflected through an office in the state, a warehouse or any sort of a distribution center as well as an independent contractor or a representative. A detailed explanation of the sale tax nexus can be found under Regulation 39-26-102.3, which clarifies what doing business in Colorado constitutes.

The next step is to determine whether the products you are selling or the services you plan on providing are taxable in the state. In general, providing services in Colorado is not taxable unless the service you provide includes the production of a product for sale. Dealing with tangible products is taxable in Colorado unless you are selling medical devices or any related items.

If you have determined that what you sell is taxable, you can proceed with the application for a Colorado Sales Tax Permit. According to the Colorado Department of Revenue, any business “selling, renting or leasing tangible personal property,” must register for a Sales Tax License or account. It also has to be noted that certain cities collect their own local sales tax, even for certain services, so it is advisable to contact your local authorities to determine whether you are required to file local sales tax returns.

Registration of a Colorado Sales Tax License can be completed through the Colorado Business Express portal or you can file manually by filling out the form CR-0100, Colorado Sales Tax/Wage Withholding Application, which you can fill out and mail to the address listed in the Contact Details section below. You will be required to provide personal identification information as well as business identification information, your business legal structure, and the products you will be selling. Unlike the majority of states, Colorado requires you to make a $50 deposit upon filing for the permit and pay an additional $16 fee. Depending on the way you choose to apply for the Sales tax Permit, you could receive your license the same day (if you apply online) or within three weeks if you mail the Form CR-0100. It will also cost you $16 to renew your Sales Tax Permit every two years.

With the sales tax permit obtained, you are clear to conduct business in the state of Colorado. However, there are certain exemptions you might be interested in, especially if you are in the online retail business.

Sales Tax Exemptions in Colorado

If you are in the business of purchasing merchandise wholesale or through liquidation companies and platforms, there is a way you can avoid paying sales tax when making your purchases. To make tax exempt purchases, use the form DR 0563 – Sales Tax Exemption Certificate, but only if you intend to resell the merchandise. Misuse of the exemption certificate by any party in the transaction is punishable by law. You can also use your Sales Tax ID Number issued by the Department of Revenue as the state does not issue a specific exemption certificate.

This is why it is advisable to be cautious in case you are presented with the sales tax exemption certificate from your buyer. Do your best to make sure that your buyer is purchasing products they usually resell in their line of business and it is not something they intend on using themselves.

If you do receive a sales tax exemption certificate when making a sale, you are required to verify that the document has been filled out and signed. You also have to keep the certificate on record for at least three years, in case of an audit. You can always verify the taxpayer’s identity or verify a license or a certificate online.

There is more tax exemption in the state of Colorado which you can review here and also read through the Colorado Department of Revenue’s bulletin, which goes into more detail on documenting sales to retailers, as well as purchases for resale.

While this guide provides information on how to register your business and sales tax in the state of Colorado, we urge you to consult professional business advisors or your local authorities to avoid any mistakes in the registration process.

Contact Details

Colorado Secretary of State

1700 Broadway, Suite 200
Denver, CO, 80290
Tel: 303-894-2200

Colorado Department of Revenue

1375 Sherman St.
Denver, Colorado, 80261
Tel: (303) 205-8411

Taxation Division Mailing Address

PO Box 17087
Denver, CO 80217-0087
General Tax Information: (303) 238-7378

Department of Regulatory Agencies

1560 Broadway, Suite 110
Denver, CO 80202
Tel: (303) 894-7855

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