Airbnb, Homeaway, and VRBO have changed the way vacationers travel. More and more guests are choosing to rent private homes over booking hotels. The opportunity for residents of Colorado to take advantage of this has never been greater.
With a bounty of glorious destinations including Rocky Mountain National Park, Steamboat Springs, and Crested Butte, the Centennial State offers prospective vacation rental hosts the opportunity to pad their income and meet new people.
But new income opportunities bring new tax implications. State and local tax authorities in Colorado expect most vacation rental home hosts to properly collect and file sales tax on short-term rentals (also commonly referred to as lodging tax, bed tax, occupancy tax, or tourist tax).
To help you get compliant with Colorado tax laws, Avalara has put together this guide covering the following key points:
- Understanding Tax Compliance
- Getting Started
- Due Dates and Penalties
- Local Laws and Regulations to Consider
- Commonly Asked Questions
Disclaimer: No vacation rental tax guide is a substitute for professional tax advice. Consider it an asset to help you understand and prioritize your vacation rental questions and concerns.
Understanding Tax Compliance
You might wonder why you have to consider sales tax when renting out your home (or other dwelling). For state and local governments, tax revenue represents a sizable portion of funding. The lodging industry’s movement toward more nontraditional rental options doesn’t excuse hosts from their tax obligations.
Much like hotel, motel, and B&B stays, short-term lodging in Colorado is subject to sales tax. Whether you choose to rent your home through a marketplace like Airbnb or direct to the consumer, you open the door to tax liability at the state and local level.
Failure to comply with state and local tax laws may not catch up with homeowners in the short term. Increasingly, however, the sharing economy is being placed under the proverbial microscope. It’s recommended that you address compliance before tax authorities address it for you.
Take the time to understand when, where, and how you’re expected to collect, file, and remit sales tax to the Colorado Department of Revenue. The sooner you understand your sales tax responsibilities, the better you can avoid potential late payment fines and interest penalties.
In its simplest form, sales tax management for your Colorado rental home can be summarized in three key steps: Registration, Collection, and Filing.
We’ve described each step below to help you better understand what’s required. That being said, taxes can be complicated. Questions pertaining to specific situations or out-of-the-ordinary conditions are best solved with a certified tax professional familiar with Colorado tax laws.
Step 1: Register with the appropriate government agencies
Prior to renting out a Colorado home, short-term rental hosts may be required to register with state and local tax authorities. Exact requirements are specific to the location of your rental. For specific tax rate and licensing requirements, visit our Colorado sales tax lookup tool. It should be noted that collecting sales tax in Colorado prior to completing all necessary registrations is against the law.
For each completed registration you’ll be assigned a filing frequency. For the state, it’s typically quarterly, or monthly. At the local level, it’s typically monthly, quarterly, or both, depending on location.
Step 2: Collect sales tax from short-term renters
Before collecting any sales tax from your guest, find out whether state or local sales tax has already been collected on your behalf. Some vacation rental marketplaces collect Colorado sales tax for their hosts.
At the time of this guide’s publication, Airbnb is collecting Colorado sales tax on behalf of the host.
It’s important to note that sales tax may be collected on your behalf at the state level, but not the local level. If you rent your lodging through a marketplace, be sure to identify which sales tax (state, local, or both) is being collected to avoid mistakenly collecting tax twice or failing to collect. Do not assume all taxes are collected on your behalf.
If it turns out you have to collect sales tax from your guests, you’ll need to determine the appropriate tax rate to charge. This rate depends on the address of the vacation rental property. Avalara offers a tax rate lookup tool you can use to determine the appropriate taxes to collect and the correct rates to charge for your vacation rental home address.
Step 3: File sales tax returns
Now, it’s time to file your tax return with the Colorado Department of Revenue and any local tax jurisdictions with which you have registered. If you have multiple returns to file, it’s important to remember their due dates may not be the same. Also, in Colorado, registered vacation homeowners may be required to file state and local returns regardless of whether any sales tax has been collected. Such returns are commonly known as “zero dollar returns.”
Take the time to double check your returns prior to submitting. Simple mistakes such as typos, missing signatures, and incorrect tax information can lead to unwanted delays. It’s not uncommon for well-meaning taxpayers to overlook basic details that may result in filings being rejected.
Due Dates and Penalties
Failure to file Colorado state and local sales tax returns on time may result in late fees, interest payments, and in extreme cases, legal action. This holds true regardless of whether any tax was collected during the filing period. Once you’re registered with the Colorado Department of Revenue, it’s important to stay on top of your filing deadlines.
Due dates for Colorado sales tax returns are as follows:
- Quarterly: Due the 20th of the month following the close of the quarter.
- Monthly: Due the 20th of the month following the close of the filing period.
In general, due dates for local sales tax returns in Colorado are the same as the state filing due dates. However, it’s always best to confirm this with your local tax authority.
Local filing deadlines may vary by location. Please contact your local tax authority for further details.
If you’re already renting your home but not collecting sales tax, understand you may be in violation of Colorado tax laws. Take the time to review your legal responsibility (with a tax professional, if necessary) and understand the risk of continuing to not collect sales tax.
As tax revenue is a major source of state and local funding, tax authorities are becoming more aggressive in their efforts to identify individuals and businesses not in compliance with state and local tax laws.
Local Laws and Regulations to Consider
Business Licenses: Short-term rental hosts in Colorado may be required to register for business and other licenses based on city, county and state requirements. Be sure to check with your state and local tax authorities for details.
Zoning Rules: Not all buildings are available for business, rental, or living usage. Most local governments have laws specifying how a home can be used. Before renting out your home, be sure to review city zoning and planning codes.
Building and Housing Standards: In most cities throughout the United States, minimal construction, design, and maintenance standards exist. Dwellings may need to meet stated criteria in order to operate legally. Contact your state and local governments for more details.
Special Permits: Check to see if your city or county requires any special permits in order to rent out your dwelling.
Homeowner Associations: Homeowner Associations (HOA) located in Colorado may have specific rules regarding vacation rentals as dictated in Declaration of Covenants, Conditions, and Restrictions (CC&Rs). Additionally, the CC&Rs may include a provision allowing for amendments to add further restrictions on the property in the future. It’s important to review this information to understand any vacation rental limitations inherent to your HOA. As a member, it’s your responsibility to understand the association’s covenants and rules.
Other Rules to Consider: This list should not be considered exhaustive. Other rules and regulations associated with leases/subletting, and condo or co-op rules may apply to your situation. A good place to start is by reviewing your signed lease and speaking with your landlord or property manager.
Commonly Asked Questions
Let’s face it, managing vacation rental taxes in Colorado can be complicated. As a vacation rental homeowner, you may encounter scenarios that leave you scratching your head. For example, who’s responsible for collecting sales tax if your long-term tenant subleases the room to a short-term guest?
To help you better understand your tax obligations, we’ve created a list of questions we frequently hear from vacation rental homeowners. Don’t see an answer to your question? Drop us a line and one of our tax experts will get in touch.
State and Local Taxes
What is the definition of “short-term rental” in Colorado?
Short-term rentals are defined by the Colorado Department of Revenue as periods less than 30 consecutive days. Residents with a signed lease for continuous residence longer than this should not be charged sales tax.
Does the Colorado Department of Revenue require vacation rental owners to register with the state?
Yes. For the purpose of collecting sales tax revenue, the Colorado Department of Revenue requires all vacation rental home owners to register with the state prior to collecting sales tax on vacation rental revenue.
What is the current sales tax rate in Colorado for short-term rentals?
The current state sales tax rate in Colorado is 2.90 percent. City and county taxes may also apply.
Do local jurisdictions in Colorado have vacation rental requirements?
Yes. Counties and some cities in Colorado require vacation rental homeowners to collect sales tax from transient occupants.
Need to look up a sales tax rate for a specific location? Choose from the list of cities in the right column or use our Colorado tax rate lookup tool to determine the tax rate and licensing requirements for your specific address.
Are there local registration requirements in Colorado?
Yes. Depending on location, vacation rental homeowners in Colorado may be required to register their dwelling with city or county tax authorities.
Are there any other licenses or permits needed for Colorado vacation rental property owners?
There may also be special district taxes, local marketing district tax, county lodging tax and city administered sales and lodging taxes to collect. Be sure to check with your city or county tax administrator for further information.
Collecting Sales Tax
Who is required to collect and file sales tax in Colorado?
Whether you’re the property owner or not, if you collect payment from short-term guests who are not exempt from sales tax, you’re likely responsible for collecting, filing, and remitting sales tax to the Colorado Department of Revenue and, depending on location, local tax authorities. You may be the property owner, a renter subleasing a room, a third-party property management firm, or other party.
What happens if I forget to collect sales tax from my guests?
Generally speaking, sales tax is collected from guests upon payment. However, the Colorado Department of Revenue places the legal responsibility for this tax revenue squarely on the shoulders of the host. Failure to collect tax from guests means the host will need to pay the tax or recoup the tax revenue from the guests.
Furthermore, the Colorado Department of Revenue has the authority to levy fines and charge interest on late payments and outstanding tax revenue.
Are there exemptions from sales tax in Colorado?
It’s important to remember short-term guests have rights and you need to understand and respect those rights. Tax exemptions are a prime example. Although uncommon, there are several situations where guests may be exempt from paying sales tax in Colorado. Examples include full-time students, active military personnel present in the community under official orders, and rental of accommodations in a migrant labor camp.
In most cases, substantiating documentation must be presented by the guest prior to payment. We encourage you to check with the Colorado Department of Revenue for explicit details.
My guests are not from Colorado. Do I need to collect sales tax?
Yes. Sales tax is collected based on the location where it is applied and, with few exceptions, is applied to all short-term renters in Colorado. As mentioned in the prior questions, there are some exemptions to this rule, but they are not predicated on the state or country a person calls home.
Are apartment or condo rentals taxable?
Apartment and condominium short-term rentals in Colorado are treated the same as single-family home short-term rentals and taxed accordingly.
Sales Tax Due Dates and Filing
What are the due dates for sales tax returns in Colorado?
Upon registering vacation rental properties with the Colorado Department of Revenue, you’ll be assigned one of the following filing frequencies and due dates.
- Quarterly: Due the 20th of the month following the close of the quarter. As an example, sales tax collected in Q2 (April, May, and June) is due July 20.
- Monthly: Due the 20th of the month following the close of the filing period. As an example, sales tax collected in October is due November 20.
Are there options for outsourcing sales tax filing?
Yes. Many vacation rental hosts in Colorado file up to 16 state and local sales tax returns annually. For many, this time burden is alleviated with filing solutions such as MyLodgeTax.
I didn’t rent my property during this filing period. Am I still required to file a sales tax return with the Colorado Department of Revenue?
Yes. Vacation rental owners registered with the Colorado Department of Revenue are required to file returns each assigned filing period regardless of whether any sales tax revenue was collected.
What happens if my assigned due date is on a weekend or holiday?
If the sales tax return due date assigned by the Colorado Department of Revenue falls on a Saturday, Sunday, or state/federal holiday, returns and payments will be timely if they are postmarked on the first business day following the assigned due date.
Does the Colorado Department of Revenue offer a discount for on-time filing?
Taxpayers who file and pay Colorado sales tax returns prior to the assigned due date may claim a discount (also known as a collection allowance) of 3.33 percent of the sales tax collected with no minimum or maximum amount.
Penalties and Interest Payments
Will I be assessed a penalty if my sales tax return is filed late?
Failure to file or pay sales tax returns prior to the assigned due date may result in a penalty equal to the greater of $15 or a percentage of the outstanding sales tax equal to 10 percent plus ½ percent for each month the tax remains unpaid. This penalty is not to exceed a total of 18 percent of the outstanding sales tax.
For details on local sales tax late filing penalties in Colorado, please check with specific tax authorities.
Does the Colorado Department of Revenue charge interest on an outstanding sales tax balance?
The Colorado Department of Revenue carries two interest rates for outstanding sales tax revenue.
The first rate is the “Discounted Rate”. This applies if the outstanding sales tax is paid prior to the taxpayer receiving a notice of deficiency from the Colorado DOR (or under specific agreed upon terms) or if the taxpayer agrees to pay the outstanding sales tax within 30 days of the issuance of the notice of deficiency. For 2017 and 2018 that rate is 4 percent.
The second rate is the “Regular Rate”. This applies after the taxpayer has received a notice of deficiency from the Colorado DOR. For 2017 and 2018, that rate is 7 percent.
For details on interest charges on outstanding sales tax revenue in local Colorado jurisdictions, please check with specific tax authorities.
What should I do if I am unable to file my return on time due to circumstances beyond my control.
Assessed penalties for late filing or paying of sales tax may be waived if hosts can show circumstances beyond their control prevented them from filing or paying sales tax returns on time. Examples include illness, natural disaster, accident, etc. Contact the Colorado Department of Revenue for more information.
I have rented my home for years without collecting sales tax. What options do I have?
Vacation rental homeowners in Colorado who have failed to collect sales tax in the past may be able to take advantage of a voluntary disclosure agreement (VDA). A VDA offers an opportunity for vacation rental homeowners to proactively disclose prior period tax liabilities in accordance with a binding agreement with the Colorado Department of Revenue.
VDAs are offered to encourage cooperation with state tax laws and may result in some or all monetary penalty and interest payments being waived.
Other Common Questions
What is the difference between income tax and sales tax?
Income taxes are reported and paid annually to the federal and many state governments on “taxable” income, which is income after allowed expense deductions. A sales tax is a tax levied by state and city agencies (not federal) and requires you to collect tax on the gross amount collected from your guests renting your vacation property — there are no deductions.
Does the 14-day rule apply to Colorado sales tax?
No, the 14-day rule applies to income tax and does not affect a vacation rental homeowner’s responsibility to collect and file sales tax in Colorado.
This guide to Colorado sales tax compliance should be considered an asset to help you understand and prioritize your vacation rental tax challenges. It should not be considered a substitute for professional tax advice.
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