Colorado restricts timely filing sales tax discount to small vendors
Numerous states reward some or all vendors for filing and remitting sales tax on time by allowing them to retain a portion of the tax they collected. Effective January 1, 2022, Colorado is repealing its timely filing discount for certain large vendors. However, the discount will still be available for many smaller businesses.
Through December 31, 2021, all timely sales and use tax filers in Colorado are permitted to retain 4% of their tax collections (aka service fee or vendor fee), up to $1,000 per month, to cover their expenses for collecting and remitting sales and use tax. The service fee has fluctuated over the years, ranging from 5% in 1965 to 0% in 2010, and has been 4% since January 1, 2020.
Colorado’s service fee for certain large retailers is eliminated starting January 1, 2022. Under House Bill 21-1312, a retailer may not retain any money to cover its expenses in collecting and remitting tax for a particular filing period if their total taxable sales during that period exceeded $1 million.
The bill doesn’t specify whether a retailer whose taxable sales dip below $1 million one month would be eligible to retain the service fee for that month. And, as of this writing, the Colorado Department of Revenue hasn’t updated its service fee page to account for the new policy.
Small businesses whose monthly taxable sales in Colorado are beneath the new $1 million threshold may continue to avail themselves of the service fee, which despite its unintuitive name, puts money back in their pockets. Furthermore, both small and large retailers may be eligible for various local vendor fees. Many local governments in Colorado provide similar discounts for businesses that file and remit the local sales tax on time. For filing sales tax on time in Littleton, for example, “you receive a 2.5% deduction (maximum of $100) … to compensate you for your cost of collecting and remitting the tax.”
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