Use Tax

Use tax is a tax intended to complement sales tax - it's the other side of the coin.  When you buy something from Colorado vendors, they are required to collect and remit tax on the sale.  If you buy something from out-of-state vendors, Colorado cannot require them to collect and remit Colorado tax, but Colorado can collect the tax from the Colorado resident who made the purchase.

Under Colorado law (and the laws of most states), use tax is owed by a resident for any "tangible personal property purchased from out-of-state vendors if the item is sold, leased, or delivered in Colorado for use, storage, distribution, or consumption in the state."  This includes purchases made by phone, internet and mail.

Tangible personal property may be loosely defined as "stuff."  Real estate is not personal property and services are not tangible, so those transactions are not subject to sales and use tax.  The use tax rate is a composite of a state rate of 2.9% and various special district assessments based on your address, but we expect the use tax rate for most of our clients to be 4%.

Use tax is not a new tax, but prior to 2015 returns, it was collected on a separate form and relied on voluntary reporting.  For tax year 2015, the state has added a section to income tax returns asking taxpayers to report the total amount of purchases subject to use tax.

In order to calculate the total of purchases for which sales tax was not collected, we suggest you review the following documents:

  • your bank accounts and credit card statements for online/mail-order transactions and
  • your account histories for online out-of-state vendors
  • We do not need copies of your statements or transaction histories.

    The most obvious online retailer to review is Amazon.com, but other top online retailers (without a physical presence in Colorado) are:

  • Overstock.com
  • QVC.com
  • Zappos.com
  • Newegg.com
  • Ebay.com
  • For Amazon, Go to "Your Account" and select "Download Order History."  On the right, under Quick Set Options, you can select "Last Year" and "Request Report" which will generate a file you can open in Excel.  Delete lines for gift cards and for purchases that were delivered outside of Colorado (for example, if you bought a gift for your mom and had it shipped to her in Arizona).  Then total up the "Item Total" column on the far right.

    Not all online retailers are exempt from sales tax collection, so you may find that you have paid sales tax more often than you think.  If a company has a Colorado presence (e.g., "bricks and mortar"), they probably charged you sales tax, so you would not include these purchases in the total of purchases subject to use tax.  This is an evolving area of tax law as technology pushes the boundaries of previously established precedent and states look for ways to increase their revenues.  Expect to see new developments in this area; for example, Amazon recently announced that it would begin to collect sales tax on purchases starting 2/1/16.