Colorado Sales and Use Tax Protest — State and Home-Rule Cities

COLORADO SALES AND USE TAX PROTEST

TABLE OF CONTENTS

1. Header and Mailing Information
2. Re: Line and Identifying Information
3. Introduction and Statement of Protest
4. Jurisdictional Statement and Timeliness
5. Statement of Facts
6. Grounds for Protest — State Sales/Use Tax
7. Grounds for Protest — Home-Rule City (If Applicable)
8. Wayfair / Economic Nexus Defenses
9. Multi-Jurisdiction ADR Election (C.R.S. § 29-2-106.1)
10. Hearing Request
11. Reservation of Rights and Requested Relief
12. Signature Block and Power of Attorney
13. Exhibits and Certificate of Service
14. Colorado Practice Notes — Home-Rule Complexity
15. Sources and References

1. HEADER AND MAILING INFORMATION

[LAW FIRM / TAXPAYER LETTERHEAD]

[DATE OF LETTER]

VIA CERTIFIED MAIL — RETURN RECEIPT REQUESTED

[For state protest:]

Colorado Department of Revenue

Taxation Division — Tax Conferee Section

P.O. Box 17087

Denver, CO 80217-0087

[For home-rule city protest — substitute the city's tax administrator address from the city's protest instructions or municipal code:]

**[CITY] Department of Finance — Tax Section

[ADDRESS]**

2. RE: LINE AND IDENTIFYING INFORMATION

3. INTRODUCTION AND STATEMENT OF PROTEST

Pursuant to [C.R.S. § 39-21-103(1) for state tax / [Municipal Code Chapter / Section] for [CITY]], Taxpayer [TAXPAYER NAME] ("Taxpayer") hereby protests the [Notice of Deficiency / Final Determination] identified above (the "Notice") and requests an administrative hearing.

Taxpayer disputes the assessment in its entirety on the grounds set forth herein and reserves all rights of further administrative and judicial appeal.

4. JURISDICTIONAL STATEMENT AND TIMELINESS

4.1. Statutory authority. [For state: This protest is filed pursuant to C.R.S. § 39-21-103, which entitles a taxpayer aggrieved by a notice of deficiency to a hearing on timely written protest.] [For home-rule city: This protest is filed pursuant to [City Code § __], which establishes the procedure for protesting a sales/use tax assessment by [CITY].]

4.2. Timeliness — state. The Notice was mailed on [NOTICE MAILING DATE]. This protest is filed on [FILING DATE], within thirty (30) days of mailing as required by C.R.S. § 39-21-103(1).

4.3. Timeliness — home-rule city. The Notice was mailed on [NOTICE MAILING DATE]. This protest is filed within [__ days as specified in city code] of the mailing/receipt date as required by [City Code § __].

4.4. Stay of collection. Filing of this protest stays enforced collection of the disputed tax during the pendency of the protest under [C.R.S. § 39-21-103(8) / [City Code § __]].

5. STATEMENT OF FACTS

5.1. Taxpayer's business. Taxpayer is a [Colorado / Delaware / [other-state]] [entity type] engaged in [describe business activity — retail sales of tangible personal property, SaaS, manufacturing, contracting, marketplace facilitation, etc.] with [principal place of business at / no physical presence in Colorado other than] [ADDRESS / NEXUS DESCRIPTION].

5.2. Sales tax license and filings. Taxpayer [holds Colorado Sales Tax License # XXXXX / does not maintain a Colorado sales tax license because [no nexus / sales below threshold]] and [is / is not] licensed in [CITY]. For the periods at issue, Taxpayer filed Colorado [DR 0100] sales tax returns reporting gross sales of $[AMOUNT], taxable sales of $[AMOUNT], and tax remitted of $[AMOUNT].

5.3. Audit history. The [Department / [CITY]] initiated audit on [DATE]. Information Document Requests were issued on [DATES] and responded to on [DATES]. The auditor proposed adjustments by letter dated [DATE], and the Notice issued on [NOTICE MAILING DATE].

5.4. Adjustments at issue. The Notice asserts the following adjustments:

6. GROUNDS FOR PROTEST — STATE SALES/USE TAX

6.1. Transaction Not Subject to Tax — Statutory Exemption

The transactions in question are exempt under [C.R.S. § 39-26-7XX — e.g., § 39-26-707 (sales to charitable organizations), § 39-26-714 (sales of components for resale), § 39-26-708 (manufacturing machinery), § 39-26-715 (food for home consumption), § 39-26-716 (medical), § 39-26-723 (industrial energy)]. Documentation supporting the exemption is provided as Exhibit [__] (resale certificates, exemption certificates, end-use certifications).

6.2. Sourcing — Wrong Jurisdiction

The Department has erroneously sourced [describe transactions] to Colorado / to a Colorado state-collected jurisdiction. Under C.R.S. § 39-26-104(3) and 1 CCR 201-4, sourcing follows destination-based rules with a $100,000 small-business exception. [Detail correct sourcing.]

6.3. Service vs. Tangible Personal Property

The transactions at issue constitute non-taxable services rather than sales of tangible personal property. Colorado generally does not tax services unless specifically enumerated (e.g., gas, electricity, telephone, certain accommodations). The Department's reclassification of [describe] as taxable lacks statutory basis.

6.4. Bundled Transaction / Allocation

To the extent a transaction includes both taxable tangible personal property and non-taxable services, the bundled-transaction rules in [1 CCR 201-4] require allocation by reasonable methodology. The Department's "all-or-nothing" treatment is contrary to regulation.

6.5. Use Tax — No Taxable Use in Colorado

The use-tax assessment fails because [the property was not used or stored in Colorado / sales tax was paid in a higher-rate jurisdiction entitling a credit / the use was for resale / the use was within a § 39-26-7XX exemption].

6.6. Penalty Abatement — Reasonable Cause

The negligence and substantial-understatement penalties asserted under C.R.S. §§ 39-26-118 and 39-21-116.5 should be abated for reasonable cause. Taxpayer [relied on a qualified tax professional / followed published guidance in CDOR FYI / had substantial authority for the position taken].

6.7. Statute of Limitations

For sales/use tax, the assessment period is generally three (3) years from the later of the return due date or filing date. C.R.S. § 39-21-107(2). Periods [before [DATE]] are time-barred and the Notice must be reduced accordingly.

7. GROUNDS FOR PROTEST — HOME-RULE CITY (IF APPLICABLE)

7.1. Statutory Construction Under Municipal Code

The [CITY] has misapplied [City Code § __] governing [describe issue]. The municipal-code definition of [term] does not encompass the transactions at issue, and the city's interpretation departs from the published guidance at [city sales-tax bulletin / FAQ / prior ruling].

7.2. Constitutional Limitations on Home-Rule Authority

While Colorado home-rule cities have broad authority under Colo. Const. Art. XX and C.R.S. § 29-2-106 to define and administer local sales/use tax, that authority is constrained by (i) the Commerce Clause; (ii) the Due Process Clause; (iii) Colorado statutory uniformity requirements; and (iv) the prohibition on extraterritorial taxation. The assessment violates these limitations because [explain — e.g., the city lacks substantial nexus over the seller, the tax is internally or externally inconsistent, the city is reaching transactions outside its boundaries].

7.3. Conflict with State Sales Tax Treatment

The city has classified [transaction] as taxable while the state of Colorado treats the same transaction as [exempt / non-taxable / a service]. While home-rule cities are not bound by state classifications, the divergence is unreasonable and inconsistent with the city's own historic treatment.

7.4. Failure to Observe Municipal Procedural Requirements

The audit and notice failed to observe [describe — notice content requirements, conferencing rights, manager review, etc.] required by [City Code § __].

7.5. Limitations Period Under City Code

The city's statute of limitations is [3 years per typical home-rule code / different — confirm], and periods [before [DATE]] are time-barred.

8. WAYFAIR / ECONOMIC NEXUS DEFENSES

8.1. Threshold not exceeded. Under C.R.S. § 39-26-102(3) and 1 CCR 201-4, economic nexus arises only where the remote seller has more than $100,000 of retail sales into Colorado in the previous calendar year (or current year on a forward-looking basis after exceeding the threshold). Taxpayer's sales into Colorado for the relevant periods totaled $[AMOUNT], [below / barely above] the threshold. [Explain how prior-year and current-year computations support no nexus.]

8.2. Marketplace facilitator collection. To the extent sales were made through a marketplace facilitator that collected and remitted Colorado tax, those sales are excluded from Taxpayer's collection obligation under C.R.S. § 39-26-103.5. Documentation of marketplace remittance is at Exhibit [__].

8.3. Home-rule city economic nexus. Many home-rule cities adopted Wayfair-aligned $100,000 thresholds via the model municipal ordinance promulgated in 2020-2021 by the Colorado Municipal League (e.g., Denver, Boulder, Colorado Springs adopted similar thresholds). However, some cities continue to assert nexus through pre-Wayfair physical-presence theories or via marketplace-facilitator language inconsistent with state law. To the extent the city asserts nexus contrary to its own model ordinance or to constitutional limits, the assessment fails.

8.4. SUTS participation. Taxpayer [has registered with / files through] the Colorado Sales and Use Tax System (SUTS). SUTS filings reflect proper sourcing and remittance for state-collected jurisdictions and SUTS-participating home-rule cities. [For home-rule city not participating in SUTS — flag separate registration and filing.]

8.5. Constitutional defenses. To the extent the city's assertion of economic nexus violates the substantial-nexus, fair-apportionment, non-discrimination, or fair-relation prongs of Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977), as refined by South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018), the assessment must be vacated.

9. MULTI-JURISDICTION ADR ELECTION (C.R.S. § 29-2-106.1)

9.1. Taxpayer [hereby elects / reserves the right to elect] alternative dispute resolution under C.R.S. § 29-2-106.1 because the transactions assessed by [CITY A] are also subject to assessment or collection by [CITY B / the State / [DISTRICT]] with respect to the same underlying sales.

9.2. The competing jurisdictional claims are: [describe].

9.3. Taxpayer requests appointment of a hearing officer under § 29-2-106.1(3) to resolve the dispute consistently across jurisdictions and avoid double taxation.

10. HEARING REQUEST

10.1. Formal hearing. Taxpayer requests a formal administrative hearing [before the Colorado Department of Revenue Hearings Division / before the [CITY] Hearing Officer] as authorized by [C.R.S. § 39-21-103 / [City Code § __]].

10.2. Format. Taxpayer requests [in-person / remote video / telephonic] hearing.

10.3. Pre-hearing conference. Taxpayer is willing to participate in an informal conference with the Tax Conferee or city tax administrator before formal hearing to attempt resolution.

10.4. Estimated time. Taxpayer estimates [NUMBER] hours for direct presentation.

10.5. Witnesses and exhibits. Taxpayer anticipates [NUMBER] witnesses and [NUMBER] exhibits. A final witness and exhibit list will be provided pursuant to scheduling order.

10.6. Statutory notice. Taxpayer requests at least 30 days' written notice of hearing pursuant to C.R.S. § 39-21-103(4) [or applicable city code section].

11. RESERVATION OF RIGHTS AND REQUESTED RELIEF

11.1. Reservation. Taxpayer reserves the right to amend or supplement this protest, to assert additional grounds, and to elevate any adverse Final Determination to [district court for de novo review under C.R.S. § 39-21-105 / the city's appellate forum under [City Code § __]] within the applicable 30-day deadline.

11.2. Requested relief. WHEREFORE, Taxpayer respectfully requests that the [Department / CITY]:

• A. Withdraw the Notice in its entirety and abate all asserted tax, penalty, and interest;
• B. In the alternative, modify the Notice to reflect the correct tax of $[AMOUNT] as set forth herein;
• C. Refund any overpayment with statutory interest;
• D. Confirm the stay of collection during the pendency of this protest and any appeal;
• E. Schedule a formal hearing with at least 30 days' notice; and
• F. Grant such other relief as is just and proper.

12. SIGNATURE BLOCK AND POWER OF ATTORNEY

Respectfully submitted,

[________________________________]

[ATTORNEY / CPA NAME]

Colorado Bar No. [####]

[FIRM NAME]

[ADDRESS]

Telephone: [NUMBER] Email: [EMAIL]

Authorized Representative for [TAXPAYER NAME]

☐ Form DR 0145 (state) Power of Attorney attached as Exhibit A

☐ City-specific Power of Attorney attached as Exhibit B (if home-rule)

Date: [__/__/____]

13. EXHIBITS AND CERTIFICATE OF SERVICE

13.1. Exhibits

13.2. Certificate of Service

I certify that on [DATE], a true and correct copy of the foregoing Protest and exhibits was served upon [the Colorado Department of Revenue / [CITY]] by certified mail, return receipt requested, addressed as set forth on page one, and by electronic mail to the assigned auditor at [EMAIL].

[________________________________]

[ATTORNEY NAME]

14. COLORADO PRACTICE NOTES — HOME-RULE COMPLEXITY

• Two parallel sales-tax systems. Colorado is the most fragmented sales-tax state in the country. CDOR administers the State 2.9% rate plus state-collected city/county/special-district rates through Revenue Online and SUTS. Approximately seventy (70) home-rule cities administer their own sales/use tax under municipal codes, with their own definitions, exemptions, returns, audit staff, hearing officers, and appeal tracks. A Colorado-based business may file with CDOR plus 5–15 home-rule cities monthly.
• DR 1002 is the source of truth. The Department's DR 1002 publication (updated semi-annually) lists every Colorado taxing jurisdiction, the rate, the collection method (state-collected vs. self-administered), and the SUTS-participation status. Always start jurisdictional analysis with the current DR 1002.
• SUTS participation. Many — but not all — self-administered home-rule cities have agreed to accept filings through SUTS. Confirm participation status before relying on a single filing portal. Non-participating home-rule cities (notably some larger cities have partial or conditional participation) require direct registration and direct filing.
• Wayfair threshold. State economic nexus at $100,000 of Colorado-sourced retail sales (no transaction-count component). C.R.S. § 39-26-102(3). Home-rule cities have generally followed via the model ordinance with $100,000 city-specific thresholds, though the methodology for measuring the threshold can vary (city-only sales vs. state-wide).
• Marketplace facilitator collection. C.R.S. § 39-26-103.5 (effective 10/1/2019) shifts collection responsibility to marketplace facilitators meeting the threshold. Most home-rule cities have parallel marketplace ordinances; verify city-specific scope.
• Protest deadlines vary. State protest is 30 days from mailing date. Home-rule city deadlines range from 20 to 30 days; many use receipt-date computation rather than mailing-date. Calendar conservatively from the EARLIER of the two possible computation dates.
• Hearing officer model. State protests go to a CDOR Hearing Officer who issues a recommendation to the Executive Director. Home-rule cities use varying models — Denver and Boulder employ in-house hearing officers; some smaller cities use a city manager or city attorney; appeal generally lies to district court, sometimes after an additional municipal review step.
• Appeal — district court de novo. State appeals are de novo in district court under C.R.S. § 39-21-105. Home-rule city appeals also generally go to district court but may travel through a different procedural route (Rule 106(a)(4) certiorari review in some cities, de novo in others). Verify the city's code carefully — appeal-track choice can be jurisdictional.
• Multi-jurisdiction ADR. C.R.S. § 29-2-106.1 provides a mechanism for resolving conflicting assertions of sales tax across multiple Colorado local jurisdictions. Underused but effective for taxpayers facing parallel home-rule audits.
• Records retention — three years minimum. C.R.S. § 39-26-116. Most home-rule cities also require three years; some (e.g., Denver) require four. Maintain records longer if waivers or open audits exist.
• Penalty abatement. State and most home-rule codes allow reasonable-cause penalty abatement at the audit, conferee, or hearing stage. Document reliance on advisors, prior CDOR FYI guidance, or substantial authority contemporaneously.
• Settlement authority. CDOR conferees and hearing officers have settlement authority subject to internal review. Home-rule cities vary widely — some authorize the tax administrator; others require city council approval for settlements above a threshold.

15. SOURCES AND REFERENCES

• C.R.S. Title 39, Article 26 (Sales and Use Tax) — https://leg.colorado.gov/colorado-revised-statutes
• C.R.S. § 39-26-102 (Definitions; economic nexus) — https://law.justia.com/codes/colorado/title-39/
• C.R.S. § 39-26-103.5 (Marketplace facilitator) — https://law.justia.com/codes/colorado/title-39/
• C.R.S. § 39-26-116 (Records retention) — https://law.justia.com/codes/colorado/title-39/
• C.R.S. § 39-21-103 (Hearings on protest) — https://law.justia.com/codes/colorado/title-39/
• C.R.S. § 39-21-105 (Appeals — district court de novo) — https://law.justia.com/codes/colorado/title-39/
• C.R.S. § 39-21-107 (Limitations on assessment — three years for sales/use) — https://law.justia.com/codes/colorado/title-39/
• C.R.S. § 29-2-106 (Home-rule sales/use tax authority) — https://law.justia.com/codes/colorado/title-29/
• C.R.S. § 29-2-106.1 (ADR — multi-jurisdiction sales tax disputes) — https://law.justia.com/codes/colorado/title-29/
• Colo. Const. Art. XX (Home Rule) — https://leg.colorado.gov/
• 1 CCR 201-4 (Sales and Use Tax) — https://www.sos.state.co.us/CCR/
• Colorado Department of Revenue — Sales Tax Guide — https://tax.colorado.gov/sales-tax-guide
• Colorado Department of Revenue — DR 1002 (Sales/Use Tax Rates) — https://tax.colorado.gov/DR1002
• Colorado Department of Revenue — Local Government Sales Tax — https://tax.colorado.gov/local-government-sales-tax
• Colorado Sales and Use Tax System (SUTS) — https://tax.colorado.gov/SUTS-info
• SUTS Participating Jurisdictions — https://tax.colorado.gov/SUTS-Jurisdictions
• South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018) — https://www.supremecourt.gov/opinions/17pdf/17-494_j4el.pdf
• Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977) — https://supreme.justia.com/cases/federal/us/430/274/
• Colorado Municipal League — Model Sales Tax Ordinance — https://www.cml.org/

Disclaimer: This template is provided for informational purposes only and does not constitute legal advice. An attorney or qualified tax professional licensed in Colorado must review and customize this document before submission. The taxonomy of Colorado state-collected versus home-rule self-administered jurisdictions, statutory thresholds, marketplace facilitator rules, and city-specific procedures change frequently; verify the current DR 1002, applicable city code, and SUTS participation list before relying on any jurisdictional assumption.