On a typical retail purchase, Austin’s sales tax comes to 8.25% and Denver’s to 8.00%, so the two cities sit about a quarter of a point apart on the final receipt. The structures underneath are very different, though, and that changes which purchases get taxed, which are exempt, and what happens when you order from an out-of-state seller. A side-by-side comparison of Austin vs Denver sales tax really has to look past the headline rate.
What Makes Up Each Rate
Austin’s 8.25% is the state ceiling. Texas charges 6.25% at the state level, and local jurisdictions can stack their own taxes on top up to a combined cap of 8.25%.1Texas Comptroller of Public Accounts. Sales and Use Tax Austin hits that ceiling exactly, with 1.00% going to the City of Austin for general operations and infrastructure and another 1.00% funding Capital Metro, the regional bus and rail system.2Austin Budget and Organizational Excellence. Tax Rates There is no room left for anything else.
Denver gets to 8.00% a very different way. Colorado’s state rate is only 2.90%, among the lowest in the country.3Colorado Department of Revenue. Sales Tax Guide The city and county of Denver adds 4.00% of its own, the Regional Transportation District takes 1.00%, and the Scientific and Cultural Facilities District takes 0.10%.4City and County of Denver. Denver Combined Tax Rates Effective 1-1-2025 Denver is a home-rule city, meaning it administers its own sales tax rather than letting the state handle collection.5Colorado Department of Revenue. Local Government Sales Tax That home-rule authority is what lets the city set its own rules on what gets taxed and at what rate.
Where the Receipts Actually Diverge
Three categories separate the two cities more than the headline rates suggest: restaurant meals, software, and services.
Eat out in Austin and you pay the same 8.25% as on anything else. Eat out in Denver and the combined rate jumps to 9.15%, because the city’s portion rises to 5.15% on food and drinks sold by restaurants, bars, and liquor stores.4City and County of Denver. Denver Combined Tax Rates Effective 1-1-2025 On a $100 dinner tab, that is roughly a dollar’s difference, which adds up over time.
Software is a bigger split. Denver taxes all forms of software, including cloud subscriptions and software as a service, regardless of how it is delivered.6City and County of Denver. Tax Guide Topic No. 18 – Software A cloud-based project management subscription you buy in Denver carries sales tax. The same subscription in Austin generally does not, unless it qualifies as a taxable data processing service under Texas law.
Services as a whole flip the script. Texas taxes 16 specific categories of services, including landscaping, data processing, debt collection, security, telecommunications, and property repair.7Texas Comptroller of Public Accounts. Taxable Services Hire a lawn care company in Austin and the full 8.25% applies to the bill.8Texas Comptroller of Public Accounts. Landscaping and Lawn Care Services Payroll processing and IT hosting are taxed as well.9Texas Comptroller of Public Accounts. Data Processing Services are Taxable Professional services like legal advice, accounting, and consulting are not on the list and stay tax-free in Texas. Colorado at the state level generally taxes only tangible personal property and a handful of enumerated services, and Denver’s home-rule add-ons focus on telecommunications, gas, electric, and software rather than labor services like landscaping.10City and County of Denver. Business Tax FAQ
Groceries, Medicine, and Family Essentials
Both cities exempt basic groceries, so the staples you take home from the supermarket come out untaxed in each place. Texas excludes food products for home consumption from state and local sales tax, covering items like produce, meat, bread, and dairy.11Texas Comptroller of Public Accounts. Grocery and Convenience Stores Candy and soft drinks are carved out as taxable, so a chocolate bar or can of soda gets the full 8.25% in Austin.12State of Texas. Texas Code TAX 151.314 – Food and Food Products Colorado exempts groceries at the state level and lets cities decide whether to do the same locally; Denver currently exempts basic groceries from its city sales tax.13Colorado Department of Revenue. FYI Sales 4 – Taxable and Tax Exempt Sales of Food and Related Items Prepared food from a restaurant is a different story in Denver, taxed at the higher 9.15% combined rate noted above.
Prescription drugs are exempt in both cities. Texas also exempts insulin, over-the-counter drugs labeled with a Drug Facts panel, and a wide range of medical equipment including prosthetics, hearing aids, and hospital beds.14Cornell Law Institute. 34 Texas Code 3.284 – Drugs, Medicines, Medical Equipment Colorado likewise exempts prescription drugs, prosthetic devices, hearing aids, corrective lenses, and durable medical equipment dispensed by prescription.15Colorado Department of Revenue. Sales and Use Tax Topics – Medical Exemptions
Diapers and feminine hygiene products are exempt in both as well. Texas made family care items including diapers, tampons, breast pumps, maternity clothing, and baby wipes permanently exempt starting September 1, 2023. Denver exempted feminine hygiene products from local tax in 2019 and added diapers and incontinence products in 2022.
Back-to-School Weekend in Texas
Texas runs an annual sales tax holiday every August that exempts most clothing, footwear, school supplies, and backpacks priced under $100 each. In 2026, the holiday runs August 7 through 9.16Texas Comptroller of Public Accounts. Sales Tax Holiday There is no limit on the number of qualifying items, though backpacks are capped at 10 per transaction. The exemption covers state and local taxes, so Austin shoppers save the full 8.25% on eligible items that weekend.
Colorado has no equivalent holiday in 2026. A bill introduced in the 2026 legislative session would create a back-to-school holiday, but the earliest it would take effect is the last weekend of July 2027.
Buying From Out-of-State Sellers
When a seller doesn’t collect your local sales tax, both states expect you to pay use tax at the same rate as if you’d bought locally. This comes up most with online orders from small retailers and private-party transactions.
In Texas, if an out-of-state seller doesn’t collect Texas tax, you owe use tax and can report it on Form 01-156. You get credit for any sales tax already paid to another state on the same item.17Texas Comptroller of Public Accounts. Texas Sales and Use Tax Frequently Asked Questions
Colorado’s state use tax rate matches the 2.90% sales tax rate, and individuals can generally remit it annually.18Colorado Department of Revenue. Consumer Use Tax Guide There is a wrinkle Denver residents often miss: because Denver is a home-rule city, the state does not administer Denver’s local use tax. Any Denver local use tax you owe has to be paid to the city directly, which is an extra step most people don’t realize is on them.
Side-by-Side Summary
- Combined retail rate: Austin 8.25% vs. Denver 8.00%
- State portion: Texas 6.25% vs. Colorado 2.90%
- Local portion: Austin 2.00% vs. Denver 5.10% on regular retail
- Restaurants and bars: Austin 8.25% vs. Denver 9.15%
- Groceries: Exempt in both
- Candy and soda: Taxed in both
- Prescription drugs: Exempt in both
- Diapers and feminine hygiene: Exempt in both
- Software and SaaS: Generally not taxed in Austin; taxed in Denver
- Lawn care and many other services: Taxed in Austin; generally not in Denver
- Sales tax holiday: August weekend in Texas; none in Colorado for 2026
For an everyday shopper buying clothes, electronics, or household goods, the two cities land within a quarter-point of each other. Where the real gap opens is at restaurants, in software subscriptions, and in the services you hire out. Austin’s rate is flat across the board but locked at the state maximum. Denver’s rate moves around by category, and the city sets most of those categories itself.