This is the 6th FAQ of this series on taxes for Canadian businesses in the USA.
What state taxes does a Canadian business pay in Colorado?
Colorado’s statewide sales tax rate is 2.9%. Depending on local municipalities, the total tax rate can be as high as 11.2%.
Colorado’s statewide sales tax rate is 2.9%.
Unemployment Tax (Payroll Tax)
If you have employees working in Colorado, you must pay unemployment taxes on their gross wages up to the taxable wage base ($13,600 as of 2020). Colorado’s standard unemployment tax rates for new employers vary by industry category and range from 0.3% to 5.9%.
Withholding (Payroll Tax)
If you have an employee earning an income while in Colorado you must withhold a certain percentage of their income from each payroll. The amount of tax you withhold from an employee depends on the length of your pay period, the employee’s gross pay and the number of withholding allowances/exemptions claimed on their IRS Form W-4.
Corporate Income Tax
Colorado corporation income tax is currently a flat 4.63% of taxable income.
If you remain under certain thresholds in this state you are not responsible for taxes.
Availability of Treaty Benefits
Use taxes are often treated as income taxes by the Canadian government when calculating income in Canada and applying for foreign tax credits. Meaning if you pay use tax in the USA but have no net profit, you will not benefit from a tax credit theoretically. The actual application is a bit more complex.
Income taxes in the USA are almost always treated as income taxes by the Canadian government. Thus, in the majority of cases, if you pay tax in the state you don’t pay tax again in Canada unless the Canadian rate is higher.
If you are considering business in Colorado, including sales over $100,000 to residents and businesses in Colorado, please contact us and we can advise on the best structure to reduce or minimize the impact of the taxes.