Colorado Sales Tax Nonpayment Risk Checklist
Introduction
Sales tax nonpayment occurs when a Colorado business collects sales tax from customers but fails to remit those funds to the Colorado Department of Revenue. Because these amounts belong to the state, not the company, nonpayment is treated as a serious tax compliance issue under state tax law.
When sales tax is not paid, collection actions may escalate quickly and include interest charges, civil penalties, liens, and possible suspension of a sales tax license. Understanding how nonpayment is identified and addressed helps businesses reduce exposure to enforcement and reputational damage.
What This Issue Means
Sales tax nonpayment occurs when a registered business fails to submit sales tax returns or remit collected tax by the required due date. Filing frequency depends on the amount of sales tax collected, with annual, quarterly, or monthly sales tax returns required based on established thresholds.
When payment is missing, the state treats the unpaid amount as Sales Tax Payable rather than a filing error. This distinction matters because failure to pay collected tax is viewed as a direct tax liability owed to Colorado rather than a clerical oversight.
Why the State Issued This or Requires This
Colorado requires businesses engaged in taxable business activities to remit sales tax collected on tangible personal property and certain services. The Colorado Department of Revenue monitors compliance through its Sales and Use Tax System, and flags accounts when there is a failure to file or a failure to pay.
Nonpayment affects public funding and triggers enforcement automatically under state policy.
The state does not evaluate intent before initiating collection, which means even administrative mistakes can result in assessment letters and enforcement activity.
What Happens If This Is Ignored
Failing to pay sales tax typically results in escalating collection actions by state tax authorities.
These actions may include tax liens, license suspension, bank levies, and wage levies that affect business operations and personal income.
The state may also pursue civil penalties for failure to pay, as well as additional interest charges over time. Continued noncompliance can lead to increased collection costs and may result in referrals to outside agencies or legal proceedings.
What This Does Not Mean
Sales tax nonpayment does not automatically mean criminal penalties apply at the initial notice stage. Most cases begin as civil enforcement matters, with criminal penalties reserved for situations involving fraud or repeated violations of the law.
Nonpayment also does not require immediate business closure. However, suspension of a sales tax license can prevent lawful operation until compliance is restored.
Checklist: What to Do After Receiving a Nonpayment
Notice or Identifying This Issue
Step 1: Locate and review the official notice
Carefully read the assessment letter from the Colorado Department of Revenue to identify the tax periods and amounts involved. Pay close attention to the deadlines and instructions outlined in the notice.
Step 2: Verify the account and transaction history
Confirm that the business name, federal employer identification number, and sales tax permits match your records. Review accounting system data and journal entries to verify whether payment has been submitted.
Step 3: Identify the reason for nonpayment
Determine whether the issue involves failure to file, failure to pay, or an error during the filing process. Review payment confirmations, tax software records, and bank statements for evidence of submission.
Step 4: Gather supporting documentation
Collect copies of sales tax returns, payment confirmations, resale certificates, and relevant transaction records. Organize documentation so it can be provided promptly if requested by tax authorities.
Step 5: Contact the Colorado Department of Revenue
Please reach out using the contact information provided on the notice to discuss your account status. Request a detailed explanation of the balance due and confirm whether additional sales tax audits are pending.
Step 6: Respond to the notice in writing
Submit a written response by the deadline explaining your findings and attaching supporting documentation. Include identifying details such as the sales tax license number and the fiscal period involved.
Step 7: Prepare for payment if nonpayment is confirmed
Confirm the total amount owed, including penalties, interest charges, and any collection cost recovery fee. Ask about payment options and whether a payment plan is available.
Step 8: Submit payment or request a payment plan
If paying in full, remit payment using the approved payment solution by the stated deadline. If you are requesting a payment plan, please provide the financial information required during the application process.
Step 9: File any outstanding returns
File any missing sales tax returns immediately using the state’s online system or approved paper forms. Include accurate reporting for all affected periods to ensure sales tax compliance is restored.
- 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 10: Document all communications and maintain records
Retain copies of all notices, responses, proof of payment, and correspondence with the state.
Records should be preserved for the applicable tax statute of limitations period.
What Happens After This Is Completed
Once payment or a payment plan is accepted, the Colorado Department of Revenue updates the account and continues monitoring compliance. Confirmation letters or receipts are typically issued once the account reflects its current status.
If a payment plan is in place, interest may continue accruing until the balance is fully paid.
Failure to meet plan terms may result in renewed enforcement action without additional warning.
Common Mistakes to Avoid
Missing response deadlines often leads to faster enforcement and fewer resolution options.
Prompt communication helps preserve the ability to negotiate payment terms.
Assuming the issue will resolve without action increases tax liabilities and the risk of enforcement. Sales tax obligations remain active until fully resolved.
Frequently Asked Questions
How quickly does Colorado take action on sales tax nonpayment?
Collection actions may begin shortly after a missed filing or payment deadline has occurred.
Timing depends on account history and prior compliance.
Can penalties be reduced or waived?
Penalties may be reduced for reasonable cause if requested in writing. Interest charges are generally not waivable.
Does nonpayment trigger criminal penalties?
Most cases are civil at the initial stage. Criminal penalties typically involve fraudulent return activity or repeated violations of the law.
Can my sales tax license be suspended?
Yes, license suspension is a standard enforcement tool for unresolved nonpayment. Suspension prevents the lawful collection of sales tax.
Should a tax professional be involved?
Some businesses resolve issues directly, while others use tax and accounting professionals.
The decision depends on complexity and risk tolerance.
Closing
Sales tax nonpayment creates a significant compliance risk and can disrupt normal business operations if left unaddressed. Prompt response, accurate documentation, and communication with the Colorado Department of Revenue help limit escalation.
Understanding nexus obligations, filing requirements, and payment responsibilities is essential for long-term regulatory compliance. Addressing nonpayment early provides more control over outcomes and reduces the risk of severe enforcement action.
Facing State Enforcement Action?
If you’ve received a notice related to sales tax or payroll tax enforcement and are unsure how to respond, our team can help you understand your options and next steps.
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