Types of business taxes in Colorado
As a business owner, you may be responsible for reporting and paying other business taxes in addition to withholding payroll taxes from your employees' paychecks. From federal to state and local levels, understanding the different tax programs and their impact on your finances is important.
Federal taxes
No matter where you open a business, you'll be responsible for paying federal taxes. There are dozens of federal tax forms with unique due dates and requirements, so using an accountant or small business accounting software can help you avoid mistakes that could lead to overpayment or penalties.
As a business owner, you have both personal and business tax filing obligations. Here’s what you need to know:
Personal tax filing
Federal income tax returns:
Every individual is required to file and pay federal personal income tax. This forms the foundation of your overall tax responsibility.
Business tax filing
Business owners have additional filing requirements, depending on the business structure:
- Sole proprietorship: Income and expenses are reported on your personal tax return using Schedule C (Form 1040).
- Partnership: A partnership must file an information return (Form 1065) to report income, deductions, and other relevant details, while each partner reports their share of income on their personal return.
- Corporation: A corporation files a corporate tax return (Form 1120), paying taxes on its profits.
- S Corporation: An S corporation files an informational return (Form 1120S). Its income, losses, and deductions pass through to shareholders, who report them on their personal returns.
- Limited Liability Companies (LLCs): LLCs are not classified separately for federal tax purposes and are taxed based on their ownership structure. Single-member LLCs default to sole proprietorship taxation or may elect corporate taxation, while multi-member LLCs default to partnership taxation or may elect corporate taxation.
Self-employment tax
If you work for yourself and earn more than $400 a year, you pay toward Social Security and Medicare programs through a self-employment tax. The Social Security system provides retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.
Employment taxes
As an employer, you are responsible for withholding and depositing federal income tax and the employee contribution to Social Security and Medicare taxes. You must also pay the employer portion of Medicare and Social Security and pay federal unemployment tax (FUTA).
State taxes
As a business owner, you must understand your state tax obligations.
Colorado corporate tax rate
In Colorado, corporations are subject to a flat corporate income tax rate of 4.4% on their Colorado taxable income.
Corporations must file an annual Colorado Corporate Income Tax Return, even if they have no tax liability. This requirement applies to both domestic corporations (incorporated in Colorado) and foreign corporations (incorporated elsewhere but conduct business in Colorado).
It's important to note that Colorado's corporate income tax is distinct from franchise taxes imposed by some other states; Colorado does not levy a separate franchise tax.
For detailed information and filing instructions, refer to the Colorado Department of Revenue's resources on corporate income tax.
How is the corporate income tax calculated in Colorado?
Colorado calculates the portion of a corporation's income subject to state corporate income tax using a single-sales factor apportionment formula. This approach considers only the percentage of the corporation's total sales made to customers located in Colorado. It ensures the tax reflects the corporation's economic activity within the state, without factoring in property or payroll, as some states do.
Example:
If a corporation has total sales of $10 million, with $2 million in sales to Colorado customers, 20% of the corporation's net income would be apportioned to Colorado. This amount would then be taxed at Colorado’s flat corporate income tax rate of 4.4%.
This method focuses solely on sales to determine a corporation’s Colorado tax liability, aligning the tax burden with in-state economic activity.
Who may be liable for corporate income tax?
In Colorado, C corporations are subject to state corporate income tax if they have a sufficient connection, or "nexus," with the state. Nexus is established for corporations incorporated or commercially domiciled in Colorado. For corporations organized outside the state, nexus is triggered during a tax period if any of the following thresholds are met:
- $50,000 or more in property located in Colorado
- $50,000 or more in payroll within Colorado
- $500,000 or more in sales to Colorado customers
- 25% or more of the corporation's total property, payroll, or sales occur in Colorado
As mentioned above, pass-through entities, such as S corporations, partnerships, and LLCs treated as partnerships, are generally not taxed at the entity level in Colorado. Instead, income from these entities is passed through to individual owners or shareholders, who report and pay taxes on their share of the income on their personal state tax returns.
Franchise taxes in Colorado
Franchise (or privilege) taxes are imposed on certain companies based on their privilege to operate within a specific state. Colorado does not have a franchise tax.
Excise taxes
Excise taxes are special taxes imposed on specific goods or services. In Colorado, these taxes apply to a wide range of products and activities, including:
- Motor fuel: Gasoline is taxed at 22 cents per gallon, and special fuels at 20.5 cents per gallon.
- Marijuana products: Retail marijuana is taxed at 15% of the sales price, in addition to standard state and local sales taxes.
- Alcoholic beverages: Liquor, beer, malt liquor, wine, cider. and other alcoholic beverages are taxed at varying rates. For example, malt liquors, such as beer, have an excise tax rate of 8 cents per gallon.
Visit the Colorado Department of Revenue website for more excise tax resources and information.
Unemployment tax
As in all states, employers must pay federal unemployment insurance (UI) taxes. In Colorado, employers also fully fund state unemployment insurance. State UI tax is paid on each employee's wages up to a maximum annual amount. That amount is known as the "taxable wage base" or "taxable wage limit."
The taxable wage base is the maximum amount of an employee's wages subject to UI premiums. For 2025, this amount is $27,200. Rates vary based on the employer's experience rating and other factors. Employers should consult the Colorado Department of Labor and Employment for rate tables and additional details.
Local taxes
In addition to federal and state taxes, many cities, counties, and other jurisdictions in Colorado levy other kinds of local taxes to fund essential services and infrastructure such as schools, roads, police, and fire protection. These taxes often include local sales taxes, property taxes, and specific use taxes.
Sales and use taxes
Colorado has a base sales tax rate of 2.9% on most taxable goods and services. Local jurisdictions—including cities, counties, and special districts—can levy additional sales taxes, leading to varying combined rates across the state. For instance, Denver’s sales tax rate is 4.15%. Add that to the following taxes:
- 2.9% state sales tax rate
- 1% RTD (Regional Transportation District) tax
- 0.1% Scientific & Cultural Facilities District tax
The results in a combined sales and use tax rate of 9.15% in Denver.
To determine the exact sales tax rate for a specific location, businesses and consumers can use the Colorado sales tax locator. It's important to note that sales tax rates may change, and staying informed about current rates is essential for compliance.
Remote seller tax considerations
Remote sellers in Colorado (businesses without a physical presence in the state) are required to collect and remit sales tax if they meet certain economic thresholds. Here’s what you need to know:
- Remote sellers must register for a Colorado sales tax license and begin collecting sales tax if their gross sales or services delivered into Colorado exceed $100,000 in the previous or current calendar year.
- The license must be obtained by the first day of the month at least 90 days after exceeding the threshold.
- Sales tax rates are based on the buyer’s location, and sellers must apply the correct local tax rates.
- Colorado’s Sales and Use Tax System (SUTS) simplifies tax remittance for remote sellers.
- Online marketplaces that facilitate third-party sales must collect and remit sales tax on behalf of their sellers once the marketplace surpasses the $100,000 threshold.
Property taxes
Property taxes in Colorado are established by the county where the owner pays them. They generally help fund municipal governments, community colleges, and public schools. Business owners receive a notice from the local tax assessor once the property is evaluated annually. The assessment rate varies by property type.
