Excise Tax, Timing & Special Cases

Colorado's gun and ammunition excise tax — what sellers need to know

Colorado enacted a 6.5% excise tax on firearms and ammunition sales effective April 1, 2024 (HB23-1219). This is separate from Colorado's sales tax. Sellers of firearms and ammunition with Colorado customers must collect this excise tax in addition to applicable state and local sales tax.

Do I need to update my sales tax registration when my business address changes?

Yes, you should update your sales tax registration address with each state where you're registered when your business address changes. State notices, PIN letters, and audit correspondence go to the address on file. A stale address means you miss critical communications. Most states allow address updates through their online portal.

Do I owe sales tax when I invoice, when I ship, or when I get paid?

Sales tax is generally owed when the sale occurs, which for shipped goods is at shipment, not when you invoice or receive payment. Most states use an accrual basis: the tax obligation arises when title transfers to the buyer, typically at the moment of shipping. Invoicing and payment timing don't shift the filing period.

How does sales tax work on returns and refunds?

When a customer returns a product for a full refund, the sales tax collected on that sale should also be refunded. The seller adjusts their taxable sales in the current filing period to net out the returned sale. Partial refunds, exchanges, and restocking fees each have specific treatment.

If I refund a customer, is the sales tax also refunded?

Yes, when you issue a full refund for a returned product, the sales tax collected on that sale should also be refunded to the customer. You then deduct that returned sale from your taxable sales on your next sales tax return. Keeping tax collected but not refunding it on a returned sale creates a compliance problem.

Tobacco and cigar excise tax requirements by state

Online tobacco and cigar sellers face both state sales tax and separate state tobacco excise taxes. Most states require tobacco excise tax registration for direct-to-consumer sales, separate from sales tax registration. Cigar excise rates vary widely, from a percentage of wholesale price to per-stick rates. Federal and state age verification, licensing, and reporting requirements add additional compliance layers.

What happens to my sales tax registrations when I sell my business?

When you sell a business, your sales tax registrations must be formally closed with each state, they don't transfer to the buyer automatically. The seller files a final return in each state, closes the permit, and requests a tax clearance certificate where needed. In an asset sale, the buyer registers fresh; in a stock sale, the entity and its permits transfer with it.

What is the difference between sales tax and excise tax?

Sales tax is a percentage applied to the retail sale price of most goods and services, collected by the seller. Excise tax is a per-unit or percentage tax imposed on specific products, typically at the manufacturer, importer, or distributor level, before the product reaches retail. Fuel, tobacco, alcohol, and firearms are common excise tax categories.

When does sales tax liability accrue — at order, fulfillment, or payment?

Sales tax liability typically accrues at the point of sale, when title and possession transfer to the buyer, which is usually at shipment for ecommerce. Most states use an accrual (shipment-date) basis rather than a cash basis. Prepayments, deposits, and multi-period contracts each have specific timing rules that can affect which period's return the tax belongs on.