Sales tax collection for the State of Colorado changed in 2019. At that time, exceptions to destination sourcing were given to small businesses. Destination sourcing means that sales tax is calculated based on the address where the taxable product or service is delivered to the consumer, not on your business location. Businesses with over $100,000 in sales should already be using destination sourcing to determine sales tax rates.

Now that the Geographic Information System (GIS) is online and available for everyone to use, state statute requires Colorado-based businesses using the temporary origin sourcing exception to transition to destination sourcing by 90 days from the date the Department announced that the system was live.

This means that all businesses located within Colorado, regardless of their sales volume, must begin complying with the destination sourcing rules below by October 1, 2022. The Department is not authorized to grant exceptions to this statutory requirement. 

General Destination Sourcing Rules

Sales tax is now calculated based on the buyer’s address when the taxable product or service is delivered to the consumer. This is called destination sourcing. Destination sourcing is also used when a product or service has a lease/rental agreement with periodic recurring payments.

Businesses will now be required to collect and remit sales tax for all retail sales to Colorado consumers, regardless of the physical location for the business. In general, a retail sale is made at the location to which it is sourced in accordance with the following rules:

1. If the purchaser takes possession of the purchased property or first uses the purchased service at the seller’s business location, the sale is sourced to that business location.
2. If the property or service is delivered to the purchaser at a location other than seller’s business location, the sale is sourced to the location the purchaser receives the purchased property or first uses the purchased service.
3. If the purchaser requests delivery of the property or service to another recipient (i.e. the purchase is a gift), the sale is sourced to the location the recipient takes possession of the purchased property or first uses the purchased service.

If a sale cannot be sourced using the preceding rules, section 39-26-104(3)(a), C.R.S., provides additional guidelines for sourcing retail sales based upon the seller’s records, the purchaser’s payment instrument, or the location from which the property was shipped. These sourcing rules do not apply to leased property. See Department publication Sales & Use Tax Topics: Leases for sourcing rules for lease payments.