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Colorado: How to Document Exempt Sales


 Colorado: the ins and outs of sales tax exemptions.

The Colorado Department of Revenue has released an information notice for Colorado sellers, detailing “How to Document Sales to Retailers, Tax-Exempt Organizations and Direct Pay Permit Holders.” It was created to help vendors “determine whether a customer is eligible to purchase taxable goods without paying sales tax.”

Generally, businesses, organizations or agencies are exempt from paying sales tax if they are:

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

If there is any doubt as to whether or not a customer is eligible for an exemption from sales and use tax, the seller is obligated to collect the tax and the buyer is obligated to pay it. Buyers then have up to three years to request a refund from the Colorado Department of Revenue.

No matter what the situation, buyers must present sellers with a valid resale or exemption certificate.

Out-of-state tax-exempt buyers without a Colorado tax exemption number must complete a Sales Tax Exemption Certificate: Multistate Jurisdiction (DR 0563) in order to claim the exemption. Sellers are permitted to keep copies on hand for such situations.

All businesses selling in Colorado should know how to properly handle sales tax exemptions. Vendors will be held liable for the sales tax during an audit unless they can prove the exemption was valid. Exemption certificates and resale certificates provide that proof.

How does your business manage sales tax exemption certificates?

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Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.