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Colorado FYIs and Sales Tax-Exempt Transactions

  • Dec 13, 2011 | Susan McLain

Colorado FYIs are tax publications developed to “…provide general information concerning a variety of Colorado tax topics in simple and straightforward language.” They represent a good faith effort of the Colorado Department of Revenue (DOR) to provide clear and accurate information to Colorado residents and businesses. One thing to note: an FYI “…is not binding on the Colorado Department of Revenue nor does it replace, alter, or supersede Colorado law and regulations.” An FYI is not formally reviewed or approved by the Executive Director, the only one who has authority to bind the Department.

Recently, the Department updated an FYI on documenting sales tax-exempt sales. Circumstances where a customer is not required to pay sales tax include:

  • Businesses purchasing goods for resale.
  • Charitable or religious organizations that use the goods in the course of their regular charitable or religious functions.
  • Federal, state and local governmental agencies that use the goods in the course of their regular governmental functions.
  • Businesses purchasing goods with a “direct pay permit” issued by the Colorado Department of Revenue.

The state emphasizes that it is the vendor who is ultimately responsible for collection of sales taxes and therefore, it is “…the seller’s responsibility to collect sales tax in questionable situations.”

In order to clearly document that a good is being purchases for resale, the seller must record the sales tax account number and ensure that the reseller has an active license. Verification can be made at www.Colorado.gov/RevenueOnline.

The FYI goes on to clarify purchases by charitable and religious organizations specifying that the Colorado tax exemption number will have “…7 or 8-digit numbers beginning with ‘98’ or ‘098’.” Another clarification found necessary was in what purchases qualify for tax-exempt purchases.

In addition to charitable and religious organizations and resellers, information was provided for out-of-state tax-exempt organizations, purchases by government agencies, tax-exempt construction projects and direct pay permits. To learn more, check out the FYI Sales 1 “How to Document Sales to Retailers, Tax-Exempt Organizations and Direct Pay Permit Holders” by the Colorado Department of Revenue.

If your business must manage 50 or more customer exemption certificates and information, you could benefit with affordable automation of your exemption certificate process. Learn more about how to reduce your audit exposure and risk with AvaTax Certs today! Call 877-780-4848.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Susan McLain
Avalara Author Susan McLain
Susan McLain began her career as a technical writer in technology industries such as satellite networking and medical devices. Her skills encompass technical and marketing writing, usability engineering, verification and validation testing and protocol writing, requirements development, business analysis, technical illustration/graphic design and marketing. She has owned her own business providing service to small to medium sized business and in other positions, she has been in project management, documentation and marketing. She is currently the content specialist for Avalara helping to “make sales tax less taxing.”