Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on July 4, 2022
If you have recently launched or are planning to launch a business that will sell products or services in Colorado, you may want to get a resale certificate, or several of them, before you start doing business, as this can save you a lot of time and money.
It’s a relatively simple process, as detailed in this step-by-step guide.
If your business has a valid resale certificate, you can buy goods from a wholesaler without paying Colorado sales tax, though you may pay a use tax. Depending on the size of your business, this can save you tens of thousands of dollars each year.
The catch is that whenever you do use a resale certificate to purchase goods, you are legally bound to resell those items and collect sales tax when you do so. If you do not resell those items, or fail to collect sales tax, the punishment could be liability for use tax on the goods.
Keep in mind, each resale certificate, also known as a resale license, applies to a single vendor. This means you’ll need a resale certificate for each one of your vendors.
You cannot use a resale certificate to buy items you do not intend to resell, such as a new computer for your business. This would be tax fraud, a felony offense. You are only able to buy items tax-exempt if you are going to collect sales tax on them later.
Not all wholesalers will accept resale certificates, nor do they have to. They may choose not to because of the risk of expired or false certificates, which would put the wholesaler on the hook for the sales tax.
You’ll need to obtain a copy of the resale certificate, known as a sales tax exemption certificate in Colorado, from the Colorado Department of Revenue. The Colorado certificate is a multi-jurisdiction certificate, so if you are doing business in other states, you can include them on the form.
In a few states, a seller’s permit, or sales tax permit, also serves as a resale certificate that applies to all vendors. But in most states, including Colorado, you’ll need a seller’s permit as well as resale certificates for each of your vendors.
The seller’s permit identifies you with your state as a collector of sales tax. If you sell tangible personal property or goods you are required to have a sales tax permit. In some states, even a service provider like a lawyer is required to have a sales tax permit and collect state sales tax.
The resale certificate applies to items that you buy for resale, or for parts that you buy to manufacture something for sale.
In Colorado, the revenue department handles the issuance of resale certificates. Start by visiting the website, then follow these simple steps:
There’s no need to file this form with the state. You’ll simply present it to your vendor at the time of purchase.
In Colorado, resale certificates do not expire. However, your sales tax license must be renewed every year, and if it expires, the resale certificate is invalid until your license is renewed. Thus, it’s best to create calendar reminders so you’re aware when expirations are coming up to ensure you’re able to apply for renewal in time and run your business without interruption.
Resale certificates can be a bit of a hassle, but in Colorado, they are an absolute necessity. So take the time to get certificates for each of your vendors to ensure full compliance with your state’s tax regulations.
