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Sales tax issues can be confusing, but there is a lot of guidance if you know where to look

Many small businesses are frustrated with sales taxes and use taxes. What's included? What's excluded? How are taxes from other states treated? How can an entrepreneur or start-up deal with these issues in the middle of everything else? Here is a simple way to understand some common sales tax issues for Colorado small businesses.

Important Tip Itemize separately the service charge from the products charge on invoices or bills. If the labor is not itemized, then the total purchase may be taxable. But, be careful, some labor is just part of the product and should be included in its price.

Colorado Small Businesses Selling in Colorado. Clearly Colorado small businesses that sell tangible personal property in Colorado are responsible for collecting sales tax.

Tangible Personal Property – What sales are Taxable. The meaning of tangible personal property for sales taxes is sometimes hard to define. One case defines it as property that can be perceived and is tangible. There are a number of types of property (computer programs delivered over the internet or by diskette) that are problematic. Colorado has provided guidance on a number of types of property and industries and this guidance should be checked in close cases.

Services are not Taxable. Services provided by small businesses are also excluded from sales tax. Examples of those rendering a service are lawyers, accountants, technical support (no exchange of parts) or hair salons (excluding products. Labor in preparing or making an item of tangible personal property for sale is not exempt when labor is incorporated into the price of the item. There is significant guidance on how these rules are applied to various industries, so, when in doubt, please check the regulations.

Colorado Small Businesses Selling Things Out-of-State. Colorado small businesses that sell tangible personal property located within Colorado at the time of sale and delivered to the purchaser by the small business or by common carrier (like mailing services) to a destination outside Colorado for use outside Colorado do not have to collect Colorado sales taxes on the sale. Usually the purchaser of these goods will be subject to use taxes in the State where they are delivered.

Non-Colorado Small Businesses Selling into Colorado. Non-Colorado small businesses that sell products into Colorado have to collect and pay sales taxes in Colorado if they are doing business in Colorado – Colorado has proposed a two part test to determine if you are doing business in Colorado for purposes of collecting sales taxes:

  1. Is the out-of-state small business selling, leasing or delivering tangible personal property in Colorado, and
  2. Does the small business maintain, directly or indirectly, an office, salesroom, warehouse, or similar place of business within Colorado.
Additional Information
Important Tip: 
Itemize separately the service charge from the products charge on invoices or bills. If the labor is not itemized, then the total purchase may be taxable. But, be careful, some labor is just part of the product and should be included in its price.
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Sales Tax Issues