Colorado State Tax Rate

Colorado maintains a relatively simple and taxpayer-friendly tax structure, highlighted by a flat state income tax and one of the lowest statewide sales tax rates in the country.

Understanding how these taxes work can help residents and businesses plan more effectively and avoid surprises at filing time.

Colorado State Income Tax

Flat Income Tax Structure

Colorado uses a flat income tax system, meaning all taxpayers pay the same tax rate regardless of income level. This approach differs from progressive tax systems used by many other states, where higher income is taxed at higher rates.

• 2024 Tax Year (Filed in 2025):
  The income tax rate is 4.25%. This represents a temporary reduction from the standard 4.40% rate. The lower rate was triggered by excess state revenue under Colorado’s Taxpayer’s Bill of Rights (TABOR), which requires refunds or tax reductions when revenue exceeds certain limits.
• 2025 Tax Year (Filed in 2026):
  The statutory rate is scheduled to return to 4.40%, although future reductions remain possible if TABOR revenue limits are exceeded again.

Local Taxes

While Colorado does not allow local income taxes, some cities impose a local Occupational Privilege Tax (OPT). This tax is typically paid by both employers and employees and is not based on income level.

Colorado Sales and Use Tax

Statewide Sales Tax

Colorado’s state sales tax rate is 2.9%, one of the lowest statewide rates among states that levy a sales tax.

Local Add-Ons:

• Cities, counties, and special districts may impose additional sales taxes. As a result, combined state and local rates can reach as high as 11.2% in certain areas. The average combined sales tax rate statewide is approximately 7.86%.

Taxable and Exempt Items:

• Generally Exempt: Groceries and prescription medications
• Generally Taxable: Prepared foods, restaurant meals, and most retail goods

Use Tax

Colorado also imposes a use tax, which applies when taxable goods are purchased without paying Colorado sales tax (such as online or out-of-state purchases). The use tax rate matches the applicable sales tax rate, starting at 2.9%, plus any local taxes that apply.

Taxpayers are responsible for reporting and paying use tax on their state income tax return if it was not collected at the time of purchase.

Finding Your Exact Sales Tax Rate

Because local sales taxes vary widely, Colorado provides a Sales Tax Lookup Tool that allows you to find the exact combined rate for any specific address. Additional guidance, forms, and instructions are available through the Colorado Department of Revenue.

Recommendation: File Electronically

Whether filing a Colorado individual income tax return or reporting use tax, electronic filing is recommended. E-filing offers several advantages:

• Faster processing and refunds
• Built-in calculations that reduce errors
• Automatic inclusion of applicable credits and deductions
• Secure confirmation that your return was received

Electronic filing is especially helpful when reporting local taxes or use tax, where manual errors are more common.