Colorado Sales Tax Enforcement Actions Checklist
Introduction
Sales tax enforcement actions are official notices issued by the Colorado Department of
Revenue when questions arise about sales tax, use tax, or broader sales and use tax compliance. These notices typically relate to whether a business correctly collected sales tax on tangible personal property, digital goods, or taxable services, reported those amounts on sales tax returns, and remitted payment using the proper tax rates.
Enforcement actions can escalate quickly if left unresolved, resulting in increased tax liabilities through penalties, interest, liens, or collection activity. Understanding what the notice means and how the enforcement process works helps businesses protect assets and respond in a way that preserves rights under the Colorado Taxpayer’s Bill of Rights.
What This Issue Means
A sales tax enforcement action is a formal communication indicating that the Department of
Revenue is reviewing, correcting, or collecting a sales and use tax obligation. These actions may include audit notices, notices of deficiency, penalty assessments, refund claim denials, lien filings, or collection notices tied to unpaid tax liabilities.
Each notice reflects a specific stage in the enforcement process, ranging from early compliance review to advanced collection or preparation for an administrative hearing. The wording of the notice determines whether the matter involves verification of sales tax returns, application of taxability matrices, or movement toward formal dispute procedures.
Why the State Issued This or Requires This
Colorado law requires businesses to complete the registration process, obtain a Colorado sales tax license, collect sales tax at the applicable rates, and remit payment by the statutory deadlines. The state issues enforcement actions when it believes that one or more of these obligations have not been met or when tax research identifies inconsistencies.
Common triggers include failure to file sales tax returns, unpaid balances, errors involving use tax on out-of-state purchases, or misclassification of digital goods such as streaming video, electronic books, or cloud service plans. Enforcement authority is grounded in the sales tax statute, administrative rules, department regulations, specifically 24-35-103.5, and guidance such as General Information Letters, Private Letter Rulings, and Sales & Use Tax Letter
Rulings.
What Happens If This Is Ignored
If an enforcement action is ignored, the Department of Revenue typically escalates collection activity. This may include assessing additional tax, denying interest and penalty abatement, filing tax liens, issuing bank levies, or pursuing civil collection through the district court.
Continued nonresponse may also result in a formal administrative hearing before the Tax
Conferee Section, with oversight by the Director of Revenue or the executive director.
Escalation increases financial exposure and limits resolution options, particularly once matters move beyond informal conference or pre-hearing conference stages.
What This Does Not Mean
Receiving a sales tax enforcement action does not automatically mean criminal penalties apply or that fraud has been established. Most enforcement matters are civil in nature, focusing on tax compliance rather than intent.
The notice does not eliminate the right to respond, provide records, request an informal conference, or challenge findings through a formal administrative hearing. Final determinations are made only after all procedural steps are completed, and appeal rights may be available to the Colorado Court of Appeals in limited circumstances.
Checklist: What to Do After Receiving This or Identifying
This Issue
Step 1: Read the entire notice carefully
Review the notice to determine whether it involves sales tax, use tax, or both, and confirm the applicable tax periods. Note deadlines, assigned contacts, and whether a notice of deficiency has been issued.
Step 2: Gather relevant business records
Collect point-of-sale data, sales receipts, bank statements, canceled checks, and copies of sales tax returns for the periods listed. Documentation should clearly support sales tax collection, delivery charges, and tax paid.
Step 3: Review filing and payment history
Compare your records with the Department of Revenue account information. Look for discrepancies involving tax rates, sales tax holidays, Public Improvement Fees, or sales tax exemptions.
Step 4: Identify the enforcement stage
Determine whether the notice reflects early compliance review, assessment, or active collection.
This distinction affects whether response options include explanations, protests, or discussions about payment.
Step 5: Determine whether professional assistance is needed
Issues involving remote seller nexus rules, dormant commerce clause concerns, or complex classifications, such as digital videos, mobile telecommunications providers, or manufacturing machinery, often require a technical review. Professional support may help when exposure spans multiple periods or jurisdictions.
Step 6: Respond to the specific request
Provide only the records or explanations requested, referencing the notice number. Responses should directly address taxability matrices, exemption certificates, refund claims, or assessment calculations.
Step 7: Submit the response before the deadline
Send all materials using a method that provides proof of delivery. Maintain copies of submissions and track dates carefully.
- State enforcement notices and responses
- Sales tax audits, assessments, and collections
- Payroll & trust fund tax enforcement issues
- Penalty and interest reduction options
- Payment plans and state tax relief eligibility
- Representation before state tax agencies
Step 8: Monitor for follow-up notices
Continue reviewing correspondence until you receive written confirmation indicating closure.
Additional notices may signal movement toward an administrative hearing or further enforcement.
What Happens After This Is Completed
After review, the Department of Revenue may close the case, issue an assessment, or continue enforcement activity. If tax is owed, the state may outline payment options, amnesty programs, or appeal rights under the Protest Rights web page.
Some cases proceed to an informal conference, pre-hearing conference, or formal administrative hearing before the Tax Conference Section. Decisions may be reviewed administratively and, in limited cases, appealed to the Colorado Court of Appeals, consistent with current and past legislation.
Common Mistakes to Avoid
Missing response deadlines often result in assessments being issued without taxpayer input, unnecessarily increasing tax liabilities. Delayed responses also reduce the ability to rely on tax research, tax decision tables, or documentation supporting exemptions.
Assuming enforcement notices are final without verification can lead to premature payment or loss of protest rights. Reviewing calculations, administrative rules, and applicable sales and use tax guidance is crucial before accepting liability.
Frequently Asked Questions
Does a sales tax enforcement notice mean an audit already occurred?
Not always. Notices may arise from data matching, filing gaps, or reporting inconsistencies that occur without a comprehensive audit.
Can penalties and interest be reduced?
Interest and penalty abatement may be available in limited circumstances and must be requested formally, accompanied by supporting documentation.
What if I disagree with the assessment?
Colorado allows written protest and administrative hearing requests. Instructions are included with enforcement notices.
Can enforcement actions involve use tax?
Yes. Many actions involve unpaid use tax on tangible personal property or taxable services purchased without sales tax.
Can individuals be held personally liable?
Depending on the business structure and circumstances, responsible persons may be held accountable. Notices identify who is liable.
Are payment plans available?
Payment options may be discussed after liability is confirmed, depending on compliance history.
Is sales tax enforcement criminal?
Most enforcement actions are civil. Criminal matters generally require evidence of intentional fraud.
How long does enforcement resolution take?
Resolution timing varies based on complexity, responsiveness, and whether hearings or appeals occur.
Closing
Sales tax enforcement actions are serious but manageable when addressed promptly and carefully. Understanding the notice, organizing records, and responding within deadlines helps reduce escalation and preserve rights.
The Colorado Department of Revenue’s enforcement framework focuses on correcting non-compliance and collecting taxes, rather than punishing good-faith businesses. Early engagement, accurate documentation, and awareness of protest rights provide the strongest path toward resolution and long-term sales tax compliance.
Facing State Enforcement Action?
If you’ve received a notice related to sales tax or payroll tax enforcement, and aren’t sure how to respond, our team can help you understand your options and next steps.
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