Colorado – How to Document Sales to Retailers, Organizations, and Direct Pay Permit Holders

SALT Report 1281 – The Colorado Department of Revenue released an FYI for vendors to help them determine whether a customer is eligible to purchase taxable goods without paying sales tax. In general, the circumstances in which a customer is not required to pay sales tax are:
  • Businesses purchasing goods for resale
  • Charitable or religious organizations that use the goods in the course of their regular charitable or religious functions
  • Federal, state and local governmental agencies that use the goods in the course of their regular governmental functions
  • Businesses purchasing goods with a “direct pay permit” issued by the Colorado Department of Revenue
Purchases for Resale
Purchases by a retailer who resells the goods as part of the retailer’s regular business activity are not taxable to the retailer, but are taxable when the retailer resells the goods to the consumer. The retailer must pay sales taxes on purchases if the retailer intends to use the goods before they are resold. The buyer does not have the option of later paying consumer use tax on purchases for business or personal use.
Purchases by Charitable and Religious Organizations
If the Department of Revenue has granted an organization exemption from paying sales tax, the organization will possess a Colorado tax exemption number. These are 7 or 8-digit numbers beginning with “98” or “098”. The purchaser must present this number to vendors when making tax-exempt purchases. For each sale, vendors must record this number, date of sale, item(s) or service(s) purchased, and name of the organization.
Purchases Made With a Direct Pay Permit
Vendors making sales to qualified purchasers who have a direct pay permit are not required to collect the state and local taxes due on such sales provided the qualified purchaser has a valid direct pay permit number.

These numbers will either begin with 90 or 090 followed by five digits or the number will be an 8-digit number followed by a dash and four digits. The permit will have the words Direct Pay Permit in the upper left corner.

The purchase must be paid for directly with funds of the qualified purchaser (not the personal funds of an individual). However, the direct pay permit is not applicable to county lodging tax and/or county rental tax and is not applicable to self-collected and administered municipal sales taxes.

Determining Exempt Purchases

Not all purchases made by tax-exempt organizations are nontaxable.You may sell tangible personal property or taxable services tax free only if the following requirements are met:

  • If the purchase totals less than $100: The purchaser must show a copy of the exemption certificate (or have a copy of the certificate on file with the vendor), and must sign an affidavit declaring the purchase is made from the organization’s funds.
  • If the purchase totals $100 or more: Payment for the item or service must be made with the organization’s check or credit card, and not via cash or an individual’s check or credit card, and the organization will not be reimbursed by any person(s) for the use or consumption of the item or service.
  • The item or service is used by the organization in conducting its regular religious, charitable, scientific, literary, or educational business. This may also include fundraising activities. See FYI Sales 2, Sales Tax Exempt Status for Charitable Organizations: Application Requirement.

Additionally, if there is a dispute between the buyer and the seller as to whether a transaction is exempt from taxation, the seller must collect sales tax and the buyer must pay it. The buyer may then apply to the Colorado Department of Revenue for a refund of the taxes under dispute with a Claim for Refund -Form DR 0137. The statute of limitations for these refund applications is three years from the purchase date.  Remember, it is the vendor who is ultimately responsible for the collection of sales taxes.

For Further Information:

Colorado Department of Revenue – FYI Sales 1