Third in a series examining Kiowa County’s proposed sales and use tax
As Kiowa County commissioners continue discussing a potential countywide sales and use tax, one of the most common questions from residents has been: What is a use tax, and how is it different from a sales tax?
While the two taxes often appear together, they serve different purposes. Under Colorado law, a use tax is designed to complement a sales tax rather than replace it.
What is a Sales Tax?
A sales tax is the type of tax most consumers encounter every day.
When a taxable item is purchased from a retailer, the seller collects the sales tax at the time of purchase and remits it to the appropriate taxing authority. The buyer pays the tax as part of the purchase price.
For example, if a county has a 1.5 percent sales tax and a business purchases $100,000 worth of taxable equipment from a retailer that collects the county tax, the retailer would collect $1,500 in county sales tax and forward it to the government.
What is a Use Tax?
A use tax applies when taxable property is purchased without paying the applicable local sales tax and is later brought into a jurisdiction for storage, use or consumption.
A purchase is generally subject to either the county sales tax or the county use tax—not both.
The proposed county sales tax would apply when a retailer collects the tax at the time of purchase.
The proposed county use tax would generally apply when taxable property is purchased elsewhere without paying the applicable county sales tax and is later brought into Kiowa County for use.
For most purchases, the use tax is simply the method used to collect the county tax when the applicable sales tax was not collected at the time of purchase.
Together, the two taxes are intended to help ensure taxable purchases are treated consistently regardless of where they are made.
How is the Tax Calculated?
Sales and use taxes are generally calculated as a percentage of the purchase price of taxable property.
For example:
- A business purchasing $10,000 worth of taxable equipment would owe $150 in county tax if the purchase were subject to the proposed 1.5 percent rate.
- A business purchasing $100,000 worth of taxable equipment would owe $1,500 in county tax.
A business purchasing $1 million worth of taxable equipment would owe $15,000 in county tax.
Whether a particular purchase is taxable depends on Colorado law and any exemptions adopted as part of the county tax.
What Purchases are Exempt?
Colorado law exempts numerous purchases from state sales and use tax, including many qualifying agricultural purchases and several other categories established in state law.
The Kiowa County Board of County Commissioners has previously indicated its intent to preserve agricultural exemptions as discussions continue regarding the proposed county tax.
Questions remain about what other exemptions, if any, may be included in a future ballot proposal. Those details have not yet been finalized.
How Would a Use Tax be Administered?
If approved by voters, the proposed county sales and use tax would likely be administered by the Colorado Department of Revenue, as is the case with many county sales and use taxes in Colorado. However, the Kiowa County Board of County Commissioners has not yet publicly confirmed how the proposed tax would be administered.
The Board also has not publicly explained how businesses would report taxable purchases made outside the county or how compliance and enforcement would work under the proposed tax.
Those topics are among the questions the Kiowa County Independent has submitted to county officials for clarification.
What About Renewable Energy Projects?
Renewable energy projects have become part of the public discussion because of the number of large-scale wind and solar developments planned or under construction in southeastern Colorado.
County officials have not yet publicly explained which equipment or materials they expect would be subject to the proposed county tax or which state exemptions the county may adopt if the measure advances.
The Independent has also requested clarification regarding how the proposed tax would apply to renewable energy projects, what exemptions may be included and whether county officials expect revenue primarily during project construction or through other taxable purchases.
Additional articles in this series will examine other aspects of the proposal as more information becomes available from county officials.
