Colorado provides a competitive business tax structure that rewards investment and innovation. With very low taxes at the state level, and a wide range of local tax structures, Colorado offers almost unlimited choices to meet the needs of all types of businesses.
Colorado’s tax climate has:
Among the lowest income tax rates of any state with a corporate income tax.
The lowest sales tax of states that assess a state sales tax.
The third-lowest residential property tax (in the state’s largest city).
Click the links below to learn more about the different tax requirements for the state and the West End.
Sales and Use Taxes
Colorado’s 2.9% sales or use tax on goods purchased by a business that are not intended for resale is the lowest among the 45 states that collect sales tax. Services are not taxed, only sales of non-food items. Use taxes substitute for sales taxes in cases where an item is purchased for consumption in Colorado from a source outside Colorado or other circumstances where a sales tax was not paid.
State Sales Tax Exemptions
Purchases of manufacturing equipment or machine tools of over $500 are exempt from state sales and use tax. Component parts, fuels and electricity, ink and newsprint, aircraft parts used in general maintenance, interstate long distance telephone charges, farm equipment and machinery, and packaging materials are also exempt from state sales and use tax. Pollution control equipment may be eligible for a refund of state sales tax contingent upon a state budget surplus. Legislation passed in 2008 abolished Colorado's "fly-away" sales tax on airplanes made in Colorado but sold to out-of-state owners. This will be a tool to entice aircraft manufacturers to Colorado.
State Sales Tax Refunds
State sales and use taxes paid on the sale, storage, use or consumption of tangible personal property to be used in Colorado directly and predominantly in research and development of biotechnology, clean technology and medical devices are refundable.
An employer's unemployment insurance tax liability is based on the taxable wage base, which is the first $10,000 of each worker's wages. If covered for the first time, the tax rate will be 1.7% of the wage base rate, plus an annually computed surtax. The surtax is 0.22%, plus a solvency surcharge of 0.6%, for a total of 2.52%. After twelve months the employer is eligible for a calculated rate. Specific information on the tax rate for a business can be obtained from the Colorado Department of Labor and Employment Unemployment Insurance Tax Branch at 303-381-9100, or on the web www.coworkforce.com
The State of Colorado does not impose property taxes on businesses; local governmental units assess property taxes primarily to fund public school operations and local government services.
Commercial and industrial property is assessed for property tax purposes at 29% of market value. Montrose county wide average of local mill levies in 2008 was 54.902 mills. Cities or counties in state-designated Enterprises Zones have the option of providing an incentive payment to new companies. This incentive cannot exceed the difference in property taxes after development less the property taxes prior to Zone designation. Local governments have the option to negotiate up to 50% rebate or credit on their portion of personal property tax as an economic development incentive
Personal property (machinery and equipment) used in commercial and industrial operations is also assessed at 29% of actual value, based on replacement cost, expected economic life of the asset and other factors. Business personal property with an economic life of one year or less, or with acquisition cost of $250 or less, is exempt. Businesses with total business personal property valued at less than $2,500 are exempt. Beginning in 2008, the exemption was raised to $7,000 over five years.
Computer and telecommunications equipment have new, accelerated depreciation schedules and reduced residual values.
Business personal property tax incentive agreements negotiated by cities, counties, or school districts may have a life span of up to ten years, giving local communities greater leverage to attract top-notch companies. Companies in former Enterprise Zones may have up to ten years to use their Enterprise Zone tax credits earned while the area’s Enterprise Zone status was in effect.
COLORADO PERSONAL TAXES
The State of Colorado levies a 2.9% sales tax on all non-food retail sales. Cities, counties, and special districts are permitted to collect additional local sales tax by public referendum. Combined sales tax rates average about 6.5% statewide, but vary by specific location. Exact rates can be found by clicking here.
Residential property is assessed at 7.96% of market value in 2009, (it fluctuates from year to year due to a statutory formula that specifies shares of revenue from commercial versus residential property). The mill levy, which is the tax rate on each dollar of assessed valuation, varies within the state. For 2008, the average total mill levy for the state was 72.748 mills. This figure includes counties, municipalities, school districts, and other special districts. The countywide average of local mill levies in 2008 was 52.705 mills. Mill levies for cities and counties in Colorado can be found in the Colorado Economic and Demographic Information System (CEDIS), which is maintained by the Department of Local Affairs on their website.
Individual income taxes in Colorado are a flat rate of 4.63% of federally adjusted taxable income, with some modifications. Local governments in Colorado do not assess income taxes.