Understanding Denver’s Business Tax Requirements 

Denver, Colorado, is known for its thriving business environment, attracting entrepreneurs and established companies alike. However, as a business owner or someone thinking about starting a business in Denver, it’s crucial to understand the local tax requirements. Complying with tax regulations not only keeps your business running smoothly but also ensures that you avoid potential fines and penalties.

Types of Business Taxes in Denver

Understanding the various types of taxes that apply to businesses in Denver is the first step in ensuring your company is compliant with local regulations. Denver’s tax system includes several key taxes, each targeting different aspects of business activity.

1. Sales and Use Tax

Sales Tax in Denver

Sales tax is a significant component of Denver’s business tax system. It is imposed on businesses for the sale of tangible personal property, specific services, and some labor services within Denver city limits. This tax is levied on the purchase price of goods or services provided by a business to a customer. The sales tax rate for Denver is 4.31%, and businesses are required to collect this tax from customers and remit it to the city.

Sales Tax Examples:

If a customer purchases a $100 item from your store in Denver, the total cost to the customer would be $107.21, which includes the 4.31% Denver sales tax. This means that you would collect $7.21 in sales tax and submit it to the city of Denver, as well as the state of Colorado, in a timely manner.

Sales Tax Rate Breakdown:

• Denver Sales Tax Rate: 4.31%
• Colorado State Sales Tax Rate: 2.90%
• Total Sales Tax Rate in Denver: 7.21%

Businesses that sell goods or services that are subject to sales tax need to ensure they charge the correct amount to their customers. If your business offers taxable goods or services, you are required to collect and remit sales tax at the time of the sale. Additionally, it’s important to note that some goods, such as food and beverages, clothing, or certain healthcare products, may be exempt from sales tax under specific conditions.

Sales Tax Collection Responsibilities:

1. Registering for Sales Tax: Businesses need to register for a sales tax license with the Colorado Department of Revenue and the City of Denver. This allows you to collect tax on sales and file the appropriate returns.
2. Collecting Tax: When you sell taxable goods or services, you must add the sales tax to the sale price. This must be clearly displayed to customers at the time of purchase.
3. Remitting Tax: Sales tax collected from customers must be remitted to the Denver Department of Finance. Businesses must file returns either monthly, quarterly, or annually, depending on the amount of tax liability.

Use Tax in Denver

The use tax applies when a business purchases tangible personal property (or certain services) without paying sales tax at the time of the purchase, such as when goods are bought from an online vendor who doesn’t collect sales tax. Since these items are being used within the city of Denver, they are subject to use tax.

• Use Tax Rate: The rate for use tax is identical to the sales tax rate of 4.31%, so businesses that purchase taxable items without paying sales tax must report and pay use tax based on the value of the goods.
• Who Must Pay Use Tax: Any business that buys goods to be used, stored, or consumed in Denver, including those items not taxed at the point of sale (such as goods ordered from out-of-state sellers), is required to remit use tax to the city.

For example, if you buy an office computer online for $1,000, and no sales tax was charged at checkout, you would owe $43.10 in use tax to Denver.

Key Use Tax Considerations:

• Recording Purchases: Business owners must keep track of any items purchased without sales tax.
• Filing Use Tax: The use tax is reported along with sales tax filings. If you’re filing monthly or quarterly sales tax returns, you will report both sales and use tax liabilities on the same form.

2. Business Personal Property Tax

What Is Business Personal Property Tax?

In Denver, businesses are also subject to a business personal property tax, which is levied on the tangible personal property that a business owns and uses to operate. This includes items such as office furniture, computers, machinery, vehicles, and other equipment essential to day-to-day operations. It is an annual tax, and businesses must file a Personal Property Declaration with the Denver Assessor’s Office.

How the Tax Is Assessed: The value of your business’s personal property is assessed by the Denver Assessor’s Office, and the business personal property tax is based on the assessed value of these assets. The Assessor uses various methods to determine the property’s value, including depreciation and market trends. Once the assessment is made, businesses must file their declaration, detailing the property they own, and then pay the tax.

For example, if a business owns equipment worth $50,000, and the tax rate for business personal property is 29.15%, the tax liability on this equipment would be calculated as follows:

• $50,000 (value of the equipment) x 29.15% (assessed tax rate) = $14,575 in business personal property tax.

Business Personal Property Declaration: Each year, businesses must report the following information to the Denver Assessor’s Office:

• Description of personal property
• Year the property was acquired
• Original purchase cost
• Depreciated value (if applicable)

Filing Requirements:

1. File the Declaration: Each year, businesses must file a Personal Property Declaration with the Assessor’s Office. The filing deadline is typically in April of each year.
2. Payment of Tax: The assessed tax must be paid by May of each year. Payment can be made online through the Assessor’s Office website.

Exemptions and Allowances:

• Small Business Exemption: Small businesses with personal property valued under a certain threshold may qualify for an exemption from personal property tax. This threshold is subject to change, so it’s important to check annually.
• Depreciation: Businesses can deduct depreciation of personal property over time, which reduces the taxable value of the assets.

Importance of Accurate Reporting: Accurate reporting of your business’s property is critical to ensure that the taxes are correctly calculated. If you over-report or under-report, you may face penalties, and it could trigger an audit.

3. Business License Tax

What Is a Business License?

In order to operate legally within Denver’s city limits, all businesses must apply for and obtain a business license from the City and County of Denver’s Business Licensing Center. The license serves as a permit to operate a business legally within the jurisdiction, and it is required for all types of businesses, whether you are running a retail store, a restaurant, or even a home-based business.

How to Obtain a Business License:

1. Submit an Application: All businesses must submit an application for a business license, providing essential details about the business. This typically includes the type of business, business address, owners, and other relevant details.
2. Pay the Application Fee: The fee for obtaining a business license can vary depending on the type of business you operate. For example, the license fee for a restaurant may differ from that of a consulting business. Business owners will need to pay the fee when they submit the application.
3. Annual Renewal: Business licenses are valid for one year, and businesses must renew their licenses annually. The renewal process typically involves paying a renewal fee and updating any relevant business information, such as changes to the company’s address, ownership, or operation type.

Cost of the Business License: The cost of the business license in Denver can vary widely depending on the nature of the business. For example:

• A home-based business may have a lower application fee than a restaurant or retail store.
• Some businesses may be required to pay additional fees, such as inspection fees or health department fees, depending on the industry (e.g., food establishments).

Importance of Business Licensing:

• Legal Compliance: A business license ensures that your business is compliant with city regulations and zoning laws.
• Operating Without a License: Operating a business without the appropriate license can lead to fines and the possibility of being shut down.

Types of Business Licenses:

• Standard Business License: This is required for most businesses operating within Denver’s city limits.
• Specialty Licenses: Some businesses may need additional licenses depending on the industry, such as liquor licenses, health permits, or sign permits.
• Home Occupation License: If you’re running a home-based business, you may be required to apply for a special home occupation license, which is subject to certain zoning restrictions.

4. Denver’s Occupational Privilege Tax (OPT)

The Occupational Privilege Tax (OPT) is a unique tax that applies to employees and businesses operating within the city of Denver. Unlike many other taxes, the OPT is a flat fee that applies to individuals who work within Denver’s city limits, as well as businesses that employ them. It is designed to generate revenue from those working within the city, whether they are residents or commuters. The tax is applied directly to individuals’ wages and is typically withheld from employees’ paychecks by their employers, who are then responsible for remitting the taxes to the city.

Employee OPT:

The employee portion of the Occupational Privilege Tax applies to all individuals working within the city of Denver, earning $500 or more per month. The tax is a flat fee of $5.75 per month, which is withheld directly from the employee’s paycheck.

Example: If an employee works within Denver and earns more than $500 per month, $5.75 will be deducted from their paycheck each month, and the business will be responsible for remitting this amount to the city.

• Who Pays It? Employees who work in Denver and earn more than $500 per month.
• Amount: $5.75 per employee per month.

Important Considerations for Employees:

• The tax is only imposed on employees earning more than $500 per month in wages. If an employee’s monthly earnings are below this threshold, they are not subject to the OPT.
• The tax is withheld directly by employers from employee wages and paid to the city on their behalf.

Employer OPT:

In addition to the employee tax, businesses are also required to pay a separate portion of the Occupational Privilege Tax, commonly referred to as the employer OPT. This tax is $4.75 per employee working in Denver.

• Who Pays It? Employers who have employees working in Denver are responsible for paying the employer portion of the OPT, which is $4.75 per employee per month.
• Payment: Employers must remit this tax to the city on a monthly basis, regardless of whether the employee earns more than $500 per month.

Example: A business with 10 employees working in Denver will owe $47.50 per month in employer OPT, in addition to the employee’s withheld portion of $5.75 per employee.

Key Responsibilities for Employers:

• Withholding Employee OPT: Employers are responsible for withholding $5.75 per employee who earns $500 or more per month.
• Remitting Employer OPT: Employers must also pay the $4.75 per employee tax on a monthly basis, regardless of employee earnings.
• Monthly Payments: Both the employee’s and employer’s portions must be remitted monthly to the city, typically through the Denver Treasury & Taxation portal.

Failure to comply with these tax obligations can result in penalties and interest charges, so employers must ensure they are properly withholding and remitting the correct amount to Denver’s Department of Finance.

5. Denver Property Tax

If your business owns property within Denver city limits, you may be subject to property tax. Property taxes apply to both real property (e.g., land, commercial buildings) and personal property (e.g., business-owned machinery, office equipment). The property tax system in Denver is administered by the Denver Assessor’s Office, which is responsible for determining the assessed value of your property.

Property Tax Assessment Process:

1. Assessed Value: Each year, the Denver Assessor’s Office determines the assessed value of the property you own based on various factors such as market conditions, the property’s condition, and comparable sales in the area.

   • For real property, this includes the value of the land and any buildings on it.
   • For personal property, it includes the value of business-owned equipment, machinery, and other physical assets.

2. Tax Rate: The property tax rate for businesses in Denver is 29.15% of the assessed value of the property. This rate applies to both real and personal property.

3. Payment: Property taxes are typically paid on an annual basis. Businesses must pay their property taxes in two installments:

   • The first installment is due in February.
   • The second installment is due in June.

Example:

• If a business owns a commercial building with an assessed value of $500,000, the property tax liability would be:
  • $500,000 x 29.15% = $145,750 in property taxes.
• This amount would be split into two payments: $72,875 due in February and $72,875 due in June.

Key Considerations for Property Tax:

• Appealing Assessments: If you disagree with the assessed value of your property, you can file an appeal with the Assessor’s Office. Typically, you have a window of time after receiving the assessment to challenge it.
• Exemptions: Some businesses may be eligible for exemptions or reductions based on the nature of the property (e.g., charitable organizations may qualify for exemptions).
• Tax Deductions: Businesses may be able to deduct the cost of property improvements or depreciation over time, which can reduce the taxable value of their property.

6. Denver’s Economic Nexus Law

With the rise of e-commerce, many businesses now conduct sales in multiple states and cities without having a physical presence in those locations. To address this, Denver has enacted an Economic Nexus Law that applies to businesses that make significant sales in the city, even if they do not have a physical presence within Denver.

What is Economic Nexus?

The Economic Nexus Law requires out-of-state businesses to collect and remit sales tax if they have a substantial economic connection to Denver. This connection is typically determined by the sales volume a business conducts in the city. The threshold for economic nexus is $100,000 in sales within a calendar year.

If your business makes over $100,000 in sales to customers in Denver, you are required to:

• Register for a sales tax license in Denver.
• Collect sales tax from Denver-based customers on sales made to them.
• Remit the sales tax to Denver, just as any local business would.

Why is this Important for E-Commerce Businesses?

This law ensures that online retailers or businesses without a physical storefront in Denver still contribute to the city’s tax revenues, promoting fairness and compliance across businesses regardless of their physical location. With the increasing volume of online sales, it is essential for businesses to stay informed about economic nexus requirements to avoid penalties for non-compliance.

Example: An online retailer based in New York makes $120,000 in sales to Denver customers during the year. Under the Economic Nexus Law, the business would be required to:

• Register with Denver’s Department of Finance.
• Collect sales tax from customers in Denver on any taxable transactions.
• File sales tax returns and remit the tax to Denver.

Key Considerations for E-Commerce Businesses:

• Tracking Sales: E-commerce businesses must track their sales into Denver to determine if they meet the $100,000 threshold for economic nexus.
• Sales Tax Collection: Once registered, businesses must begin collecting Denver’s 4.31% sales tax on sales to customers located within the city.
• Filing and Remitting Tax: Businesses must file regular sales tax returns and remit the taxes they collect from Denver customers.

7. Franchise Tax (State Level)

In addition to the local taxes imposed by the city of Denver, businesses must also comply with state-level tax obligations. One such tax is the franchise tax, or corporate income tax, which is levied by the state of Colorado on businesses operating within the state.

Corporate Income Tax (Franchise Tax):

• The Colorado franchise tax applies to corporations (C-corporations) and businesses that are taxed as corporations, such as limited liability companies (LLCs) that elect to be taxed as corporations.
• The corporate income tax rate in Colorado is 4.55% of the corporation’s net income.

Who Pays It?

• Corporations (C-corps) or LLCs taxed as corporations are subject to the franchise tax.
• Businesses structured as pass-through entities, like S-corporations or LLCs taxed as partnerships, do not pay the corporate income tax. Instead, the income passes through to the business owners, and the owners pay tax on their personal income tax returns.

Key Points:

• The corporate income tax applies only to businesses that are classified as corporations under the law.
• This tax is filed annually, typically using Colorado’s DR 0112 Corporate Income Tax Return.

Key Differences in Taxation for Different Business Structures

The taxation structure in Denver can differ depending on the type of business entity you choose. Here’s a breakdown of how different business structures are taxed:

8. Other Local Taxes and Considerations

In addition to the primary taxes listed above, there are other taxes and considerations that business owners in Denver may need to take into account, including:

• Hotel and Lodging Tax: If your business involves renting out lodging, such as a hotel or Airbnb, you’ll need to collect a hotel and lodging tax, which is 10.75% in Denver.
• Lodging Tax for Short-Term Rentals: Similar to the hotel tax, if you operate a short-term rental in Denver, you will be subject to a 10.75% tax on rental income.
• Marijuana Sales Tax: For businesses in the cannabis industry, Denver has special taxes applied to marijuana sales. The sales tax on marijuana is 15%, and there are additional excise taxes on cannabis products.

How to Stay Compliant with Denver’s Business Tax Requirements

Staying compliant with Denver’s business tax laws can be complex, especially for entrepreneurs who are just starting out. Here are some tips to help ensure that your business remains in good standing with the city’s tax authorities:

1. Register Your Business with the City and State

Ensure that your business is properly registered with both the state of Colorado and the City of Denver. This includes obtaining your business license, registering for sales tax permits, and complying with any other registration requirements.

2. Keep Detailed Records

Maintaining thorough records of your business transactions, sales, and purchases will help you calculate your tax liability more easily and ensure that you’re remitting the right amount of tax. This includes sales receipts, invoices, and documentation of business expenses.

3. Stay Updated on Tax Changes

Tax laws can change frequently. Make sure to stay up to date with any changes to Denver’s tax laws, including tax rates and filing deadlines. The City of Denver provides resources and updates on tax changes through its official website.

4. Work with a Tax Professional

Consulting with an accountant or tax advisor who specializes in Denver’s business tax requirements can save you time and money. They can help you navigate the complexities of Denver’s tax system and ensure that your business is compliant with all relevant laws.

5. File and Pay Taxes on Time

Timely filing and payment of taxes are crucial to avoid penalties and interest. Keep track of important tax deadlines, including business license renewals, sales tax filings, and property tax assessments. Many taxes can be filed and paid online through the City of Denver’s Treasury and Taxation website.

Conclusion

Denver offers a dynamic business environment, but understanding and complying with the city’s business tax requirements is key to success. From sales taxes and business licenses to personal property taxes and occupational privilege taxes, business owners must stay informed and diligent to ensure they’re meeting their obligations.

By familiarizing yourself with Denver’s business tax structure, working with tax professionals, and keeping accurate records, you can navigate the city’s tax landscape with confidence. Whether you’re starting a new business or growing an existing one, understanding these requirements will help you build a solid foundation for success in Denver’s thriving business community.