Colorado Resale Certificate: A Step-by-Step Guide

If you have just started or are planning to start a company selling items or services in Colorado, it’s advisable to obtain one or multiple resale certificates before beginning operations to save time and money. Obtaining a Colorado resale certificate allows you to purchase goods tax-free for resale, ensuring compliance with state tax regulations. This step-by-step guide explains the process in a straightforward manner.

What Exactly Is A Resale Certificate?

If your company possesses a legitimate resale certificate, you are eligible to purchase items from a wholesaler in Colorado tax-free, but you may still be subject to a use tax. Depending on your business’s scale, this could save tens of thousands of dollars annually.

Using a resale certificate to buy items means you must legally sell them and charge sales tax. Failure to resell the items or neglecting to collect sales tax may result in liability for use tax on the goods. Remember, each resale certificate, which is also referred to as a resale license, is only valid for one vendor. This implies that you will require a resale certificate for every vendor you work with.

You are not permitted to utilize a resale certificate to purchase goods that you do not plan on reselling, like a new computer for your company. This is considered tax fraud, a serious crime. You can only make tax-exempt purchases if you plan to charge sales tax on them in the future.

Not every wholesaler is obliged to accept resale certificates. The wholesaler may opt out due to the potential issue of expired or counterfeit certificates, leaving them responsible for the sales tax.

Applying for a Resale Certificate in Colorado: Steps to Follow

You must get a resale certificate, also referred to as a sales tax exemption certificate in Colorado, from the Colorado Department of Revenue. The Colorado certificate is valid in multiple jurisdictions, so you can list other states where you conduct business on the form. In some states, a seller’s permit, also known as a sales tax permit, can also function as a resale certificate that is valid for all suppliers. However, in many states, such as Colorado, you will need to have both a seller’s permit and resale certificates for all your suppliers. The seller’s permit signifies you as a sales tax collector within your state. You must obtain a sales tax permit if you are selling physical goods or tangible personal property. In certain states, a lawyer, as a service provider, must obtain a sales tax permit and charge state sales tax. The resale certificate is valid for purchases made for resale or components purchased to produce goods for sale.

Is There An Expiration Date For A Colorado Resale Certificate?

In Colorado, resale certificates have no expiration. Nevertheless, it is important to note that your sales tax license needs to be renewed annually. If it expires, your resale certificate will be considered invalid until the license is renewed. Therefore, it is recommended that you set up calendar alerts to stay informed about upcoming expirations so you can renew on time and continue operating your business smoothly.

Bottom Line

Resale certificates may pose some challenges, but in Colorado, they are indispensable. Ensure that you acquire certificates for all your vendors to guarantee compliance with the tax regulations in your state.

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