consumer tax laws

What Do You Need to Know About Consumer Tax Laws in Colorado?

By Rodney Atherton Attorney Arvada

When we talk about consumer tax laws, we are referring to consumption taxes – collecting a tax when someone purchases good and services. The most common form of consumption tax is retail sales tax. Most states have a general sales tax in effect, and nearly every state has laws specific to certain types of products such as liquor, cigarettes, and gasoline.

“Consumption taxes can take the form of sales taxes, tariffs, excise and other taxes on consumed goods and services,” notes Investopedia. “The term can also refer to a taxing system as a whole where people are taxed based on how much they consume rather than how much they add to the economy (income tax).”

The fundamental idea behind state consumer taxes is that it’s an accepted way for a state to collect revenue from ayone making purchases. However, taxes can have additional purposes as well – incentivizing people not to spend money on habits that threaten public health or lead to crime. In the case of alcohol, overconsumption leads to cases of physical abuse and drunk driving, so Colorado pushes people to control their drinking by charging extra taxes at the liquor store.

The basics on Colorado consumer taxes

Sales tax in Colorado is actually extraordinarily low vs. most other states, just 2.9 percent. (Compare that to 6.5 percent in Kansas and 5.125% in New Mexico, for instance.) However, as FindLaw discusses, a “home rule” tax system allows local governments to charge as much as 10.4 percent on sales (ie, an additional 7.5%). That means Denver’s sales tax is effectively 6.55 percent, because the city locally collects 3.65 percent.

In Colorado, the cap on gambling taxes is 40 percent, but brick-and-mortar casinos effectively have to pay 20 percent, half of which is sent to the state’s general fund.

Here are tax rates for different types of consumer purchases, as of October 2016:

  • Sales tax – 2.9% (reaching as high as 10.4% with local taxes included)
  • Cigarette tax – 84 cents on each standard pack of cigarettes
  • Marijuana tax – 10%
  • Gasoline tax – 40.4 cents per gallon (18.4 cents of which is a federal tax)
  • Use tax – 2.9%
  • Alcohol tax – Spirits, $2.28 per gallon; Wine, 28 cents per gallon; beer, 8 cents per gallon
  • Gambling tax – Maximum 40% of adjusted gross profits.

Understanding use tax

Use tax is tax on any transactions made via the Internet, phone, or mail order for which you did not pay Colorado sales tax. “Individuals and businesses have always been required to pay sales or use tax on taxable purchases from out-of-state vendors if the item is sold, leased, or delivered in Colorado for use, storage, distribution, or consumption in the state,” explains the Colorado Department of Revenue.

Do you have further questions about Colorado or federal taxation? At Ergo Law, we offer practical, accurate and effective tax advice, as well as innovative tax strategies and financial products to maximize wealth protection. Meet our attorneys.