How to get a Colorado Sales Tax Exemption Certificate [2023 Guide]
When a business purchases inventory to resell, it can do so without paying sales tax. To do so, the retailer will need to provide a Colorado Sales Tax Exemption Certificate to their vendor.
Learn more about what the exemption certificate is, how to get one, and more.
What is a Sales Tax Exemption Certificate?
When retailers purchase products to resell, they often don’t pay sales tax to the supplier on the purchase. The sales tax will still be paid, but instead of the retailer paying sales tax, the retailer charges sales tax to their customer on the final value of the merchandise. The collected sales tax is then sent by the retailer to the Colorado Department of Revenue.
For instance, let’s consider a ski equipment store in Aspen, Colorado. When the store buys ski gear from manufacturers to sell in their store, the store owner can avoid paying sales tax on these transactions by presenting their resale certificate. The tax isn’t due on items purchased for resale; instead, it’s applied when the final consumer makes the purchase.
When a customer comes into the ski equipment store and purchases a pair of skis, the retailer will add Colorado’s sales tax to the total price of the skis. This sales tax is collected by the store at the point of sale.
At the end of a given period, typically the end of the month, the ski equipment store will add up all the sales tax it has collected from its customers. The store will then send this collected sales tax to the Colorado Department of Revenue. Thus, while the ski equipment store is responsible for collecting and remitting the sales tax, the actual tax burden falls on the end customer.
The purpose of the certificate is to provide evidence of why the seller made a tax exempt purchase. Similar names for a resale certificate include reseller number, seller’s permit, exemption certificate, wholesale license, or reseller’s license. In order for the supplier to allow the tax-exempt purchase, the seller needs proof the buyer intends to resell the product by providing a valid resale certificate.
The sales tax exemption is only intended to be used for inventory that will be resold and not intended for the tax-free purchase of items used in normal business operations such as paper, pens, etc.
Before a business starts selling tangible personal property (physical products) or providing taxable services, it must first get a Colorado Sales Tax License from the Colorado Department of Revenue. The Sales tax license is sometimes referred to as a seller’s permit, sales tax number, or sales tax permit.
Is a Sales Tax Exemption Certificate the same as a Sales Tax License?
The sales tax license and exemption certificate are commonly thought of as the same thing, but they are actually two separate documents. The sales tax license allows a business to sell and collect sales tax from taxable products and services in the state, while the exemption certificate allows the retailer to make tax-exempt purchases for products they intend to resell.
After registering, a sales tax number will be provided by the Department of Revenue. This number will be listed on the Sales Tax Exemption Certificate.
How to fill out the Colorado Sales Tax Exemption Certificate
Filling out the Sales Tax Exemption Certificate (Form DR 0563) is pretty straightforward but is critical for the seller to gather all the information.
If audited, the Colorado Department of Revenue requires the seller to have a correctly filled out DR 0563 Sales Tax Exemption Certificate. Without it correctly filled out, the seller could end up owing sales taxes that should have been collected from the buyer in addition to penalties and interest.
Step 1 – Begin by downloading the Colorado Sales Tax Exemption Certificate Form DR 0563 or filing through the Department of Revenue
Step 2 – Identify the business name and business address of the seller
Step 3 – Identify the name and business address of the buyer
Step 4 – Check the reasons why the buyer qualifies not to pay sales tax. Options include:
- Charitable or religious
- Political subdivision or governmental agency
- Other (must specify)
Step 5 – Describe the products to be purchased from the seller
Step 6 – The purchaser will certify the property being purchased is for resale and sign and date the certificate.
DR 0563 Sales Tax Exemption Certificate Fillable Form
Colorado Sales Tax Exemption Certificate FAQs
How much does a Sales Tax Exemption Certificate cost in Colorado?
There is no cost for an Exemption Certificate in Colorado.
Does a Colorado Sales Tax Exemption Certificate Expire?
A seller must re-verify the purchaser’s resale license or tax exemption certificate each calendar year.
Where do I file the Colorado sales tax exemption certificate?
The resale certificate is kept on file by the seller and is not filed with the state.
Are sellers required to accept exemption or resale certificates?
Sellers are not required to accept exemption or resale certificates from other states. If the vendor doesn’t accept the certificate, the buyer will have to pay sales tax on the merchandise being purchased. In most cases, a credit is provided when filing the Colorado sales tax return.
What steps should a business take to accept an exemption certificate?
When a business is presented with a resale certificate, the burden of proof is on the seller to verify that the buyer’s information is correct and to keep these records. Failing to verify this information may put the liability of paying Colorado sales taxes on the seller.
To verify whether a Colorado exemption certificate is valid
– Review the certificate to make sure it is completely filled out.
– Verify the purchaser’s Colorado Sales Tax License by visiting the Colorado Department of Revenue’s website and click on the “Verify a License or Certificate” link.
– Sellers are also responsible for considering whether the goods and services sold are consistent with the purchaser’s claim that the sale is exempt from sales taxes if the purchases are over $250. For example, if the buyer’s business is a car dealership, but they want to purchase office supplies tax-free, the seller should investigate further.
– Keep a file of exemption certificates.
More information regarding the documentation of exempt sales can be found from the Colorado Department of Revenue – 1 CCR 201-4.
Alaska (no sales tax)
Delaware (no sales tax)
Montana (no sales tax)
New Hampshire (no sales tax)
Oregon (no sales tax)