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Colorado Business Tax – Complete Guide

If you have taken a decision to start a new business or shift your existing company to Colorado then it is recommended to identify the Colorado business tax structures and rates. Taxes are an important part of annual requirements for any form of business in a specific state. The good news is that the state of Colorado provides a pro-business environment and is known to have gone easy where corporate income taxes are concerned. We have created this article to provide information and guidance on the various taxes applicable in this state, filing taxes using a Colorado business tax Calculator, tax rates, and how different businesses will be taxed.

Colorado Business Tax

Individuals in Colorado or any other state may be required to file federal as well as state income taxes but it is not the same case with business owners. If you form an entity in Colorado then you may have to file different forms of taxes depending on the entity structure and the state of formation. These may include income taxes, corporate taxes, franchise taxes, self-employment taxes, sales taxes and even local city or county taxes. It is important to understand that just like in any other state, state taxes like Colorado business tax is an integral part of the annual maintenance requirements. Hence all entity structures whether domestic or foreign will be required to file business taxes as applicable using a Colorado business tax Calculator and according to the tax rate in this state.

What taxes do businesses pay in Colorado?

As an entrepreneur, you will be required to take several decisions when starting a new business including identifying the tax structure and choosing a state that has a conducive tax environment. It is important to derive a clear understanding of the Colorado business tax landscape as this will impact your overall cash flow, profitability, and competitiveness in the said market. The 2024 State Business Tax Climate Index Report states that Colorado has a better tax climate as compared to several other states like New Jersey (11.5 percent), Illinois (9.50 percent), and Pennsylvania (8.99 percent). Whether you form a limited-liability company, C Corporation, a sole proprietorship, or a general partnership, the overall tax burden will be certainly lower due to the various tax credit programs offered by the state. Let’s try to understand the different types of Colorado LLC taxes or corporate taxes applicable to new and existing businesses in this state.

Colorado income tax

If you have decided to start your company in the state of Colorado then you will be pleased to know that this type of Colorado business tax is lower as compared to several other states and the state also has several tax credit programs to support small companies and large enterprises. There are two types of state income taxes, so let’s take a look at them.

  • Individual Income Tax – The individual income tax in the state has a flat rate of 4.40 percent. It is important to note that the state income tax is different from that of the federal income tax. There are certain types of entities that are required to file this type of tax. You will need to use a Colorado business tax calculator to help you file the correct return within the due date, which is April 15, 2024.
  • Corporate Income Tax – This is also known as the Colorado Corporation taxes and is levied on both foreign and domestic entities. Any business entity that has chosen to be taxed as a corporation, will be required to file this return. The three elements taken into consideration for determining the Colorado corporate income tax are property, payroll, and sales. There is also a threshold for establishing a substantial nexus in this state.

Sales and use tax

The Sales and Use Tax in the state is considered to be an important form of Colorado business tax and is applicable for a variety of entities. The state imposes sales tax on the retail sales of tangible personal property and is not applicable on services, except those that are specifically taxed by state law. The Colorado Department of Revenue administers this type of Colorado LLC taxes and it will also be applicable to restaurants, cafes, lunch counters, etc., or on the sale of food and drink being served at dining establishments and places of business. The state sales tax rate is a flat 2.9%.

The Use Tax is a type of Colorado corporate income tax where the rate is the same as the sales tax, which is 2.9 percent. The filing as well as remittance requirements for the use tax is different from that of the sales tax. The Colorado Department of Revenue is responsible for administering the use tax for the State of Colorado as well as certain special districts within this state like the Scientific and Cultural Facilities District (CD).

The sales and use tax rate may vary according to the city or county where your business is located. Let’s look at an example to understand how this type of Colorado corporation taxes or LLC taxes vary:

Example: If your business is located in the city of Ault (Weld County) then the City Sales Tax Rate will be 3 percent and the use tax rate would also be the same. The city of Fleming in Logan County has a sales tax rate of 2% but there is no use tax. Similarly, the city of Superior in Boulder County has a sales tax of 3.46% and use tax rate of 3.3 percent.

Employer taxes

If you hire employees after starting a company in Colorado then you may be required to file employer taxes. They are also known as Colorado Wage Withholding Tax. This type of Colorado business tax requires a business to register with the Colorado Department of Revenue. As an employer, you will be required to withhold Colorado income tax from the wages of your employees. The filing of the returns is possible on a monthly, quarterly, and weekly basis depending on the total annual Colorado wage withholding liability of the employer. Every qualified employer will have to prepare the W-2 form for each of their employees for reporting this form of Colorado LLC taxes.

Local Colorado taxes

The company or the owner of a business in the state of Colorado may be subjected to several types of local taxes. This type of Colorado corporate income tax or business tax will vary from one city or county to another. Some of the most commonly applicable taxes include:

  • Property Taxes
  • Occupational Taxes
  • Use tax
  • Construction Use Tax
  • Public Accommodations and Short-Term Rental Tax

Are you thinking of starting a small business in Colorado?

How are Colorado Businesses Taxed?

Once you form a business entity in the state of Colorado, it will be necessary to maintain compliance with all annual state requirements. One such annual requirement is that of filing federal and state taxes. Colorado business tax type and rate will vary according to the type of entity structure, business activity and even the local jurisdiction. Your company may be required to file multiple state or local business taxes. Let us look at the different types of entities and their tax obligations in this state.

Taxes for an LLC

If you are planning to register a limited liability company in Colorado then one of the important annual requirements will be filing of federal taxes as well as Colorado LLC taxes. A limited-liability company is known as a pass-through entity. This refers to the fact that the owner will have to file state income tax on all their profits, minus any deductions or state allowances. Colorado has a flat individual income tax rate of 4.4%. This form of Colorado business tax is due on April 15 each year and you can always leverage the state’s automatic six-month tax extension.

There are other Colorado LLC taxes that you may have to file. These include Withholding tax, Sales tax, Use tax, and other local taxes as may be applicable.

Taxes for a C Corporation

If you are planning to organize a C Corporation then you will be required to file different types of Colorado corporation taxes as a part of the state’s annual maintenance requirements. The most important amongst these is the Colorado corporate income tax. This tax is levied on all corporations, domestic and foreign. The current tax rate is a flat 4.40 percent. It is important to note that if the net Colorado tax liability for the tax year exceeds $5,000 then such a C corporation will have to file Colorado estimated tax payments.

The Colorado corporate income tax is also dependent on substantial nexus, which includes exceeding the following thresholds:

  • Property – $50,000
  • Payroll – $50,000
  • Sales – $500,000

Apart from this, the other forms of Colorado corporation taxes that may be applicable include Sales and Use tax, Fiduciary Income Tax, Withholding Tax, and other local taxes, which vary from one county to another.

Taxes for S Corporation

If you have started a C Corporation or a limited-liability company then you can always elect S Corporation status. This is nothing but a type of tax status or tax designation that is issued by the Internal Revenue Service (IRS). You will first have to form an LLC or a corporation and then file Form 2553 for the said entity to be treated as an S-Corp. If looked from the Colorado corporate income tax perspective, the state will treat your S corporation in the same way as the federal government would, which is that instead of the company, the owners have to file state income taxes.

It is also important to note that an S corporation is required to file Colorado K-1s (DR 0106K) for each of their shareholders or partners for each tax year. The due date for this type of corporation taxes is April 18, each year. S Corporations may also be subjected to other forms of Colorado corporation taxes like Withholding Tax, Sales tax, and use tax among others.

Taxes for a Sole Proprietorship

If you are thinking of forming a sole proprietorship in Colorado then the most important form of Colorado business tax will be the income tax. As the name suggests, a sole proprietorship is a single owner run company and hence the owner will have to file an individual income tax return. You will be required to file the Form 1040.

You may also be required to file form DR 0104EP for Individual Estimated Income Tax. This is applicable for businesses that pay tax on income, which is not subjected to withholding (no employee wages). Estimated tax will be applied on earnings that are specifically from self-employment, rents, interest, dividends, etc. You may also be required to file sales tax and use tax depending on the business activity and a Colorado business tax calculator can help you in figuring out the tax payable.

Taxes for Partnerships

A partnership like a limited-liability company is also considered to be a pass-through entity. As a result, the owners of such an entity will have to file Colorado LLC taxes like the individual income tax. The income tax requirements are quite similar to that of a sole proprietorship as well as single-member LLC’s. The individual income tax returns that have to be filed using Form 1040. Partnerships will also be filed alongside Colorado K-1 (DR 0106K) as part of their return for each of their partners. This has to be filed with the Colorado Department of Revenue and the due date is April 15, each year. Another type of Colorado business tax that may be applicable is the sales tax and the use tax depending on the business activity of such a company. A partnership may also be required to file withholding tax if it has employees on wages.

Ready to incorporate your Colorado Company?

Colorado is one of the top states when it comes to providing just the right business environment. The state boasts of a pro-business environment and this includes low taxes and several forms of tax credit programs. You can choose to form a C corporation, partnership firm, sole proprietorship, Limited Liability Company, and even elect for S Corporation tax status. Once you form a new business in this state, it is important to maintain compliance with all annual requirements including filing Colorado corporate income tax returns. IncParadise can provide information and assistance pertaining to filing of state taxes.

IncParadise is one of the top incorporation service providers in Colorado and we can help you to register your LLC or organize a C corporation in this state. IncParadise also offers additional services to fulfill all types of business related requirements like foreign qualification, annual report, and filing DBA among others.

Are you ready to form your company in Colorado?