If your company has been operating in Colorado without registering or filing for required state taxes, you could be facing significant back taxes, penalties, and interest. From sales and use tax to corporate income and payroll obligations, the costs can escalate quickly once the Colorado Department of Revenue (CDOR) initiates contact.
The Colorado Voluntary Disclosure Program (VDP), also known as a Voluntary Disclosure Agreement (VDA), provides an opportunity for businesses to come forward before an audit begins. By applying proactively, you can reduce your look-back period, eliminate penalties, and secure a clear path to compliance.
Why the Colorado Voluntary Disclosure Program Matters for Businesses
Colorado is a growing hub for industries such as technology, outdoor recreation, and manufacturing. The state actively enforces compliance through data-sharing agreements with other states, audits of large marketplace sellers, and reviews of federal filings.
If your business has nexus in Colorado and has not registered or filed, the CDOR has the authority to assess liabilities for multiple years. Once they reach out with a letter or call, you lose your eligibility for the VDP. Acting first ensures you control the timeline and terms.
Taxes Covered Under the Colorado VDP
Colorado’s Voluntary Disclosure Program can apply to:
- Sales and use tax (including state-administered local taxes).
- Corporate income tax (C corporations, S corporations, LLCs taxed as corporations).
- Withholding tax for employers with Colorado-based employees.
- Other miscellaneous state taxes and fees administered by CDOR.
Disclosing all tax types at once can prevent future audits for undisclosed liabilities.
Colorado VDP at a Glance
| Feature | Details |
| Administered By | Colorado Department of Revenue |
| Eligible Taxes | Sales and use, corporate income, withholding, other state taxes |
| Typical Look-Back | 3 years for most taxes, up to 4 years for corporate income |
| Penalty Relief | 100% waiver of penalties |
| Interest Relief | Generally not waived |
| Anonymity | Yes, through a representative |
| Deadline After Agreement | 60 to 90 days to file and pay |
Who Qualifies for the Colorado Voluntary Disclosure Program?
Your business may qualify if it meets all of the following:
- Has not been previously registered for the tax type you are disclosing.
- Has not been contacted by the CDOR about the liability.
- Is ready to file and pay all amounts due within the agreed timeframe.
If your company has already received a nexus questionnaire or audit notice, you’ll need to work with the CDOR through a negotiated settlement instead.
Common Nexus Triggers for Businesses in Colorado
Economic Nexus – Sales and Use Tax
Under Colorado’s economic nexus rules, remote sellers must register if they exceed:
- $100,000 in gross sales into Colorado during the previous calendar year.
Marketplace facilitators must collect and remit tax, but sellers remain responsible for direct sales outside those platforms.
Physical Presence Nexus
- Maintaining an office, warehouse, or other facility in Colorado.
- Storing inventory in a Colorado warehouse or fulfillment center.
- Employing staff or engaging contractors in the state.
Corporate Income Tax Nexus
- Deriving income from Colorado sources.
- Owning or leasing property in Colorado.
- Sending employees or agents into the state for business purposes.
Benefits of Entering the Colorado Voluntary Disclosure Program
- Penalty elimination: Waiver of late filing, failure-to-register, and negligence penalties.
- Reduced look-back period: Generally three years for sales tax instead of the full statutory reach.
- Predictable outcome: Terms are negotiated before filing begins.
- Anonymity: Applications can be submitted through a representative so your identity is disclosed only after eligibility is confirmed.
Step-by-Step Colorado VDP Process for Businesses
| Step | Actions | Timeline | Responsibility |
| 1. Internal Review | Confirm nexus, estimate liabilities | Days 1–5 | Internal team / SALT counsel |
| 2. Anonymous Application | Submit through a representative | Days 6–10 | SALT counsel |
| 3. CDOR Review | Determine eligibility and issue agreement | Days 11–20 | CDOR |
| 4. Registration | Obtain tax account numbers | Days 21–25 | Operations |
| 5. Filing & Payment | File returns and pay tax plus interest | Days 26–60 | Accounting / Commenda |
| 6. Closing | Receive signed closing agreement | Days 61–90 | SALT counsel |
Deadlines are strict, so a compliance calendar is essential.
Colorado vs. Other State VDPs
| State | Sales Tax Look-Back | Penalty Relief | Interest Relief | Anonymity |
| Colorado | 3 years | 100% | No | Yes |
| California | 3 years | 100% | No | Yes |
| Texas | 4 years | 100% | No | Yes |
| Georgia | 3 years | 100% | No | Yes |
Colorado’s look-back and penalty relief terms are competitive, although like most states it does not waive interest.
Key Considerations Before Applying
- Gather complete data: Compile sales, payroll, and property records for the applicable period.
- Disclose all liabilities: Include every tax type to avoid future audits.
- Maintain anonymity: Use a SALT attorney or CPA to shield your identity until eligibility is confirmed.
- Leverage automation: Tools like Commenda Global Sales Tax can pull data from Shopify, Amazon, NetSuite, and Stripe for fast and accurate filings.
Long-Term Compliance After the VDP
Once the VDP is complete, businesses should:
- Monitor nexus thresholds yearly.
- Keep registrations current.
- File and pay all taxes on time.
- Maintain detailed records for at least seven years.
Many companies pair the Colorado VDP with a multi-state nexus review to prevent similar exposure elsewhere.
When Businesses Should Use the Colorado VDP
The program is ideal for businesses that:
- Have unregistered taxable sales or payroll in Colorado.
- Recently crossed the $100,000 economic nexus threshold.
- Identified liabilities during a merger, acquisition, or investment round.
- Want to address liabilities before CDOR contact.
How Commenda Supports Businesses with the Colorado VDP
Commenda makes the Colorado Voluntary Disclosure Program process simpler by:
- Conducting multi-state nexus reviews, including Colorado.
- Preparing anonymous applications through trusted legal partners.
- Integrating and reconciling data from multiple sales channels.
- Generating CDOR-compliant returns quickly.
- Tracking all filing and payment deadlines to protect penalty relief.
With Commenda, your business can move from initial application to signed closing agreement in weeks.
Book a Demo to see how Commenda can help you resolve your Colorado tax exposure with confidence.
