Colorado uses one of the simplest income tax designs in the country: a flat 4.4% rate for both corporations and individuals. There is no franchise tax, no gross receipts tax and no capital stock tax, and LLC fees are among the lowest in the United States. The complexity in Colorado sits elsewhere, in a home-rule sales tax system that can require separate filings with dozens of cities.
This guide covers Colorado's business taxes for 2026, from income and sales taxes to payroll programs, plus a comparison with neighboring states.
Corporate income tax
Colorado taxes C corporations at a flat 4.4% of Colorado net income. There are no brackets.
- Apportionment: Single sales factor with market-based sourcing.
- Combined reporting: Required for affiliated groups that meet Colorado's unitary tests. Colorado also includes income of affiliates in listed foreign tax-haven jurisdictions.
- Credits: Enterprise zone credits for investment and job creation in designated areas, plus research credits within enterprise zones.
- Returns: Form DR 0112 is due on the 15th day of the fourth month after year-end, with an automatic six-month extension.
Colorado's 4.4% rate is one of the lower corporate rates among states that tax corporate income. Only North Carolina at 2% and a handful of others undercut it.
Personal income tax and pass-through owners
Individuals pay the same flat 4.4% on Colorado taxable income, which starts from federal taxable income with state adjustments. Business owners pay this rate on their share of LLC, partnership and S corporation profit.
Colorado adds back some federal deductions for high earners. For example, Colorado has required taxpayers with high adjusted gross income to add back part of the federal qualified business income deduction in past years. The SALT parity election lets partnerships and S corporations pay Colorado tax at the entity level, where it is deductible federally, avoiding the individual SALT cap.
Because of the Taxpayer's Bill of Rights (TABOR), Colorado has reduced the income tax rate temporarily in years when revenue exceeded the constitutional limit. In those years the effective rate can drop slightly, typically to around 4.25%.
Sales and use tax
The state sales tax rate is 2.9%, the lowest of any state with a sales tax. Local taxes push the average combined rate to about 7.89%, and Denver businesses collect more than 9% in some areas.
Colorado's challenge is administration:
- State-collected jurisdictions: The Department of Revenue collects the state tax plus taxes for counties, special districts and statutory cities.
- Home-rule cities: About 70 home-rule municipalities, including Denver, Aurora, Boulder, Colorado Springs and Fort Collins, run their own sales tax systems. Businesses with nexus may need separate licenses and returns for each.
- SUTS portal: The Sales and Use Tax System lets businesses file and pay many home-rule city taxes in one place, but not every city participates.
- Remote sellers: Out-of-state sellers with more than $100,000 of Colorado sales must collect.
- Retail delivery fee: About 29 cents per delivery that includes taxable goods, charged on top of sales tax.
Payroll and property taxes
- Unemployment insurance: Employers pay state unemployment premiums on a wage base that has been rising in steps and is above $25,000 for 2026. New employers usually start around 1.7%, plus solvency and support surcharges in some years.
- FAMLI: Colorado's paid family and medical leave premium is about 0.9% of wages, split equally between employer and employee for employers with 10 or more workers.
- Occupational privilege taxes: Denver, Aurora, Greenwood Village and a few other cities charge a monthly head tax per employee, paid partly by employers and partly by employees.
- Business personal property tax: Equipment and furniture are taxed by counties. Property worth less than the exemption threshold, about $56,000 per county, is exempt.
Forming a business in Colorado: fees and ongoing costs
| Item | LLC | Corporation |
|---|---|---|
| Formation filing fee | $50 | $50 |
| Periodic report | About $25 per year | About $25 per year |
| Franchise or capital tax | None | None |
| Sales tax license | $16 state license, plus home-rule city licenses | Same |
| Registered agent | Required | Required |
Colorado has repeatedly cut business filing fees in recent years, so check the Secretary of State's fee schedule for the current periodic report amount.
Worked example: $500,000 of profit
| Step | Amount |
|---|---|
| Taxable income | $500,000 |
| Colorado corporate tax at 4.4% | $22,000 |
| Federal tax at 21% on $478,000 | $100,380 |
| Total income tax | $122,380 (24.5%) |
For a single LLC owner with $150,000 of Colorado taxable income, state tax is $6,600. At $75,000 it is $3,300. Self-employment and federal income taxes are added on top.
How Colorado compares with its neighbors
Colorado's income tax is lower than Kansas and New Mexico and similar to Utah and Nebraska. Wyoming next door has no income tax at all, but most founders choose Colorado for access to the Denver and Boulder talent markets.
Choosing an entity in Colorado
Since corporations and individuals pay the same 4.4%, Colorado's tax code is close to neutral between entity types. The decision usually rests on federal tax and investor requirements:
- LLC: Low cost, flexible and the most common choice.
- S corporation: Can reduce federal self-employment tax; make the SALT parity election to deduct state tax federally.
- C corporation: Required for most venture funding. The combined 24.5% rate on retained earnings is moderate.
Tax planning tips for Colorado businesses
Map your home-rule exposure early. A business with a warehouse in Aurora, a sales rep in Denver and customers in Boulder may need three city sales tax licenses in addition to the state license. Many home-rule cities also tax business purchases through use tax when the seller didn't collect city tax. Building this into your accounting system from day one is much cheaper than fixing it after an audit.
Claim the business personal property exemption. Even if your equipment is worth less than the county threshold, you must file a declaration in the first year to establish the exemption.
Use enterprise zone credits. Much of rural Colorado and parts of the Denver metro area are designated enterprise zones. Investment tax credits, new employee credits and job training credits can significantly reduce state income tax for qualifying projects, but most must be pre-certified before the work begins.
Recent changes for 2025 and 2026
- Special session in 2025: The legislature adjusted state conformity to the new federal tax law and expanded the list of foreign tax-haven jurisdictions whose income is included in combined reports.
- FAMLI premium: The rate was set at about 0.9% of wages for 2026.
- TABOR refunds: The temporary rate cut mechanism remains in place, depending on revenue each year.
Is Colorado a good state for business?
Advantages
- Low flat 4.4% income tax with no franchise tax
- Cheap formation and annual reports
- Strong talent pool in Denver, Boulder and Colorado Springs
- Lowest state-level sales tax rate in the country
Drawbacks
- Complex home-rule sales tax system with separate city filings
- Occupational privilege taxes and the retail delivery fee
- Rising payroll costs from FAMLI and unemployment premiums
- High housing and office costs in the Front Range
Compliance checklist
- File Articles of Organization or Incorporation with the Secretary of State.
- Register for state sales tax, withholding and income tax through the Department of Revenue.
- Register separately with each home-rule city where you have nexus.
- Register for unemployment insurance and FAMLI if you hire.
- File the annual periodic report with the Secretary of State.
- File personal property declarations with county assessors by April 15.
Compare Colorado with its neighbors below or use the United States calculator. For entity planning, see LLC taxes.