1 Colo. Code Regs. § 201-5
Special Rule 1. Advertising Agencies.
Advertising agencies primarily furnish a service for their customers and, in connection with furnishing such service, acquire items of tangible personal property which are used by the agencies to perform a service or which go to their customers in connection with the performance of the service.
Special Rule 2. Agricultural Products and Equipment.
Basis and Purpose. The bases for this rule are sections 39-21-112(1), 39-21-113(1)(a), 39-26-102, 39-26-105(3), 39-26-116, 39-26-122, 39-26-209, 39-26-703(1), 39-26-707(1), and 39-26-716, C.R.S. The purpose of this rule is to clarify the requirements for exempt sales of agricultural products and equipment.
Special Rule 3. Automobile Dealers, Vehicles Used in a Manner That Continues the Right to the Resale Exemption.
Special Rule 3.1. [Repealed eff. 09/30/2020]
Special Rule 4. Automotive Repairs.
Parts and accessories installed in automotive vehicles are of the same nature as other sales of tangible personal property and, accordingly, are taxable. The taxable amount is the total charge made to the customer, with deductions therefrom allowed for service or labor charges if separately stated.
If the repair of an automobile is subcontracted to another repairman by the customer's repairman, the sub-repairman will charge sales tax to the customer's repairman on the retail price of the parts used in the repair job unless specifically instructed that the job is for resale, in which case the tax will be billed to the customer by the customer's repairman. In either case, an itemized bill from the sub-repairman must be available to the customer to show that tax was charged by one or the other repairman.
Automobile dealers, garages, repairmen, etc., may purchase tax free only tangible personal property for resale. This exemption does not apply to service vehicles, machinery, equipment, supplies, tools, etc., which they purchase for their own use or consumption and not for resale. Supplies consumed in the performance of a job, such as sandpaper, masking tape, etc., are taxable to the repairman.
Special Rule 5. Broadcasting Stations and Other Media.
Purchases of tangible personal property by broadcasting stations are subject to tax if title to the property is acquired by the stations and the property is not to be resold in the regular course of business. Such purchases include equipment, materials and supplies for transmitter (phonograph records, blank discs, etc.,) relay, studio, business office and general station facilities.
Advertisements for a Colorado vendor making retail sales of tangible personal property to Colorado residents through a broadcasting station or by direct orders to the advertiser must state that sales tax must be added to the sales price remitted by Colorado residents.
Special Rule 6. Cemeteries.
Cemeteries must charge sales tax on the selling prices of cement vaults, liners, markers, sod and similar items.
Persons constructing above ground burial structures or below ground concrete foundations are deemed to be constructing improvements to real property and must follow the "Contractor's Rule".
Also See "Morticians" in this section.
SR 7: [Repealed 03/01/2010 per House Bill 10-1192]
SR 7.5 [Repealed]
Special Rule 8. Consigned Merchandise Sales.
Regardless of the status of the consigned inventory for the purpose of any other tax and regardless of whether the retail customer knows that inventory is not owned by the vendor, the vendor is (1) the retailer of the property and (2) liable for the tax due on the retail sales.
Special Rule 9. Containers.
Sales of containers, labels, tags, cartons, packing cases, wrapping paper, twine, wire, pallets, skids, bags, shipping cases, bottles, cans, similar articles and receptacles sold to manufacturers, producers, wholesalers, jobbers, retailers, or other licensed vendors, for use as containers, labels, and furnished shipping cases for articles sold by them are not taxable. See, Weed v. Occhiato, 488 P.2d 877 (Colo. 1971); Adolph Coors Co. v. Charnes, 690 P.2d 893, (Colo. App. 1984), aff'd 724 P.2d 1341 (Colo. 1986). See, also, Special Rule 2, for sales tax application for farm pallets, crates, bailing wire, and other shipping items.
Deposits on returnable containers are not subject to sales tax.
Special Rule 10. Contractors.
"Contractor" includes building contractors, road contractors, grading and excavating contractors, electrical contractors, plumbing and heating contractors, and also includes any other person engaged, under a contractual arrangement, in the construction, reconstruction, or repair of any building, bridge or structure. For the purpose of this rule, "subcontractor" has the same meaning as "contractor".
Building materials purchased by contractors for construction work on property owned by the United States Government, State of Colorado, charitable organizations, schools, or political subdivisions are taxed or exempted from sales or use tax depending on the date of acquisition.
The contractor must file an application for an exemption certificate on a form prescribed by the Department of Revenue. If approved, the department will issue an exemption certificate to the contractor. (See § 39-26-708(1), C.R.S.)
An over-the-counter sale of a complete unit not made to order, with an agreement for installation of the unit, is not a building contract. This rule includes sales of stoves, refrigerators, furnaces, air conditioners, washing machines, dryers, carpets, electrical fixtures, ready-made cabinets, storm doors, garage doors, storm windows, screens, sod and similar items. On such sales the sales tax must be collected from the purchaser by the retailer-contractor. If the installation charges are segregated in the bid proposal or sales invoices, these charges are not taxable. Repairs of such articles are not considered repairs to real property as contemplated in the "contractor's rule".
Special Rule 10.1. Priority - Credit for Taxes Paid to Other State
When a construction contractor has purchased building materials in another state that are resold in this state, that are manufactured into other building components that are resold in this state, that are installed into a construction project in this state, or that are placed in inventory and then withdrawn for one of those other three uses at a later time, a credit against sales or use tax owed to this state up to the amount of tax owed shall be allowed as follows:
Special Rule 11. Coupons.
Retailers accept coupons from their customers for a reduction in the regular selling price of an article. These coupons are classified as either manufacturer's coupons or store coupons.
A manufacturer's coupon is issued by the manufacturer of an article and allows the customer a reduction in the sales price of the product upon presentation of the coupon to the retailer. Because the retailer is reimbursed by the manufacturer for the amount of the reduction, sales tax applies to the full selling price before the deduction for the manufacturer's coupon.
A store coupon is issued by the retailer for a reduction in the sales price of an article when the coupon is presented to the retailer by the customer. Because there is no reimbursement to the retailer for such reduction, the sales tax applies to the reduced selling price of the article.
Special Rule 12. Dental Laboratories and Dentists.
A purchase made by a dental laboratory, which becomes a constituent part of a prosthetic device to be resold to a dentist, is exempt from sales and use tax. Purchases of supplies and materials that do not become constituent parts of a prosthetic device are taxable. Sales of prosthetic devices to a dentist are exempt from sales or use tax.
Prosthetic devices are replacements for lost or missing natural parts, or are the addition of devices through prosthetic dentistry to aid the dental bodily functions. Prosthetic dentistry consists of the use of inlays, crowns, replacement of lost teeth, bands, brackets, and other band attachments, wires, intraoral and extraoral traction devices, and retaining or holding appliances and other devices which aid in the dental bodily functions. Gold and silver used for fillings are also exempt.
General business equipment and supplies are taxable as are all hand instruments and other items used for patient care, and dental equipment and furnishings, and supplies used for patient diagnostic records.
Dental laboratories must obtain a sales tax license and must collect and remit sales tax on taxable sales.
Special Rule 13. Eating and Drinking Establishments.
The sale of meals and beverages is subject to sales tax and any person making such sales must acquire a sales tax license and collect sales tax based upon the total consideration paid thereon.
Caterers and other persons similarly engaged are liable for sales tax on the total selling price of items sold and/or charges for service essential to providing meals and beverages.
Private enterprises, such as commercial and manufacturing companies, and public agencies, such as governmental organizations, regularly serving, and charging their employees or the public for meals and beverages, are liable for sales tax based upon the selling price of such meals and beverages.
Fund-raising meals priced in excess of the regular selling price are subject to tax on the regular selling price.
The vendor of meals and drinks must pay the tax on purchases of most products used or consumed in the operation of his business, including fixtures, linens, silverware and glassware. Carpenter v. Carmen Co., 111 Colo. 566, 144 P. 2d 770, (1943). Plastic and paper products such as tablecloths, towelettes, napkins, soda straws, plates, knives, forks, spoons, and cups are specifically exempt from sales tax § § 39-26-707(1)(c) and 39-26-707(1)(d), C.R.S.
When a customer purchases one dinner and receives another free as a result of presenting a coupon issued by the restaurant, tax applies only to the actual price charged. However, tax applies to the full (non-discounted) price of the meal when an entity other than the restaurant issues a coupon or similar chit for a price reduction or free meal. See, Special Rule 11 (Coupons).
Boarding houses, which serve meals only to persons regularly boarding there and not to the public, should not collect sales tax on the meals. Such boarding houses are exempt from sales tax on their purchases of food, but must pay sales tax on all non-food items.
Bed and Breakfast Inns are engaged in selling meals, snacks and accommodations and the entire charge made is subject to sales tax. Therefore, Bed and Breakfast Inns can purchase food served to paying guests and guestroom supplies, such as tissue, soaps, lotions, or shoeshine cloths, free of sales tax.
The following gratuities are not subject to sales tax if the total amount of the gratuity is distributed by the vendor to persons who actually render the service: cash tips (money left by the patrons for use of those providing the service), charge tips (amounts added to sales check by the patrons for use of those providing the service), banquet tips, and tips separately stated and added to the sales check by the vendor at a flat rate.
Special Rule 14. Fabricating, Producing, and Processing.
"Fabricating, producing, and processing" includes any operation which results in the creation or production of an article of tangible personal property, or which is a step in a process or series of operations resulting in the creation or production of such an article; the terms exclude operations not so related for the creation or production of such an article.
An operation which changes the form or state of tangible personal property is one of fabrication. Persons regularly engaged in the fabrication or production of articles for sale at retail shall collect and remit the tax on the sales price. If the fabricator converts such property to his own use, he shall remit the tax based on his acquisition cost.
The tax applies to the total charges for the fabrication or production of an article of tangible personal property made to order. For example, if a manufacturer orders a machine part from a machine shop, the tax shall be paid on the total charge for the part, including labor, although charges for labor may be segregated from the cost of the materials. Similarly, the total charge for making drapes is subject to tax.
Tax does not apply when an exemption is claimed, such as when a buyer intends to resell the fabricated item without otherwise using the item, or when a fabricator produces an item that would be exempt in the hands of the buyer, such as when a buyer purchases manufacturing machinery or machine tools that qualify under § 39-26-709(1), § 39-26-709(2), C.R.S. (use tax exemption) or § 39-30-106 C.R.S. (tax exemption in an enterprise zone). The fabricator should obtain the necessary information to establish that the sale is exempt, such as obtaining the buyer's sales tax account number or exemption certificate number or a file Department form DR-1191 for machinery or machine tools.
Special Rule 15. Sales on Federal Areas.
"No person shall be relieved from liability for payment of, collection of, or accounting for any sales or use tax levied by any state, or by any duly constituted taxing authority therein, having jurisdiction to levy such a tax, on the grounds that the sale or use, with respect to which such tax is levied, occurred in whole or in part within a federal area; and such a state or taxing authority shall have full jurisdiction and power to levy and collect any such tax in any federal area within such state to the same extent and with the same effect as though such area was not a federal area."
"The provisions of sections 105 and 106 of this Act shall not be deemed to authorize the levy or collection of any tax on or from the United States or any instrumentality thereof, or the levy or collection of any tax with respect to sale, purchase, storage, or use of tangible personal property sold by the United States or any instrumentality thereof to any authorized purchaser." (See Title 4, U.S.C.A., Section 105-110, 197., (Buck Act).) [The following added 2001] However contractors with the federal government cannot assume the tax exemption of the federal government unless the contractor is, for all legal purposes the agent of the federal government. Purchases made in behalf of the federal government, by a non-agent contractor who used the purchases in the performance of a contract service with the federal government, are taxable. (Regional Transportation District v. Martin Marietta Corp., 805 P. 2d 1102 (Colo. 1991)
Any person making retail sales of tangible personal property on an Native American reservation located within the boundaries of the state of Colorado shall be required to obtain a Colorado retail sales tax license and shall collect and remit sales tax on retail sales to all parties except members of the tribe on whose reservation the sales take place (formerly, "non-Indians"). If such retailer is a Native American member of the tribe on which the store is located (formerly, "Indian") or an exempt instrumentality, there will be no charge for the license. See Moe v. Confederation Salish and Kootenai Tribes, 425 U.S. 463, 48 L. Ed.2d 96, 96 S. Ct. 1634, (1976.) (Changes 2002.)
Special Rule 16. Fiduciaries.
Trustees, receivers, executors, or administrators who, by virtue of their appointment by a State or Federal Court, operate, manage, or control a business engaged in buying and selling of tangible personal property, including the liquidation of the assets of a bankrupt, insolvent, or deceased person, must acquire a store or sales tax license in the fiduciary's name and otherwise meet the collection and reporting requirements of the Act.
Special Rule 17. Financial Institutions.
Banks, savings and loan associations, and similar financial organizations who offer gifts or premiums of tangible personal property as an inducement for opening an account, making a deposit or adding to an account are, for purposes of the Act, making sales of tangible personal property (see (1) below), or are making purchases (see (2) below).
These gifts and premiums are purchased by the financial institution and given to the customer or offered to the customer at a reduced price when a deposit is made to the customer's account. The purchase of these gifts and premiums or sales thereof are to be reported in the following manner:
[Following amended, 2002]
Special Rule 18. Transportation Charges.
Special Rule 19. Gas and Electric Services.
Gas and electric services, whether furnished by municipal, public, or private corporations or enterprises, are taxable when furnished for commercial consumption, but are not taxable when sold for resale or for any of the uses set out in 39-26-102(21), C.R.S. or when subject to any of the general exemptions of the Act. (see also, Rule 39-26-102(21).)
The tax applies to all amounts paid for taxable gas or electric services, irrespective of whether there is an actual consumption; the tax is imposed on all payments, whether in the form of a minimum charge, a flat rate, or otherwise.
Persons performing services, as well as stores, office buildings and other commercial users, are not industrial users and are required to pay the sales tax.
Electricity sold for commercial lighting purposes is taxable, but electricity sold for industrial use is exempt. Example: electricity used to light a restaurant is taxable; electricity used by a restaurant to prepare meals is exempt; electricity used to light chicken houses to stimulate egg production is exempt; electricity used to light an industrial plant to enable it to produce is exempt.
The following methods are available for restaurant operators to claim credit for sales tax on their purchases of gas and electricity used in processing food for immediate human consumption.
[The following sentence added, 2002] These credits or reductions only apply if a Colorado sales tax is charged against all the utility bills of the establishment or their landlord, and the utilities are used to process food that when sold is subject to Colorado sales tax.
For the purpose of determining the applicable percentage of food sales, the term "food sales" shall include only sales of edible foodstuffs which are processed and sold for immediate consumption, but shall not include the sales of alcoholic beverages. The second method may be used even though the applicable percentage of food sales exceed 25%.
The credit shall be claimed on an annual basis on the January sales tax return for the previous year. In the case of a seasonal business, the credit shall be claimed on the June sales tax return. The computation for claiming this credit should be made on forms prescribed by the department of revenue.
The exemption of the sale, use, storage, or consumption of energy pursuant to § § 39-26-102(21) and 715(2)(b), C.R.S. (2009), and as described in subsection a), above, is suspended and such sale, use, storage, or consumption is subject to sales and use tax if the sale, use, storage, or consumption occurs on or after March 1, 2010 and before July 1, 2012. The suspension of this exemption does not apply to:
Special Rule 20. Gift Certificates.
Sales of gift certificates and similar documents, as well as their redemption for cash, are not subject to tax. If the gift certificates, etc., are redeemed for merchandise and not cash, sales tax is due on the total selling price of the merchandise.
Special Rule 21. Gifts, Premiums, and Prizes.
Purchases of tangible personal property for use as gifts, premiums or prizes, for which no valuable consideration is received from the recipient, are subject to tax on the total purchase price; the purchaser is deemed to be the user-consumer of such property. Examples would be gifts given to all individuals who attend a time-share real estate presentation, regardless of whether the individual buy or invest in the proposals. If the property is purchased from a licensed Colorado vendor, all applicable sales taxes should be paid to the vendor upon such purchases. If no sales tax is paid upon such purchases, the sales tax should be paid directly to the department of revenue by the purchaser. Any person purchasing tangible personal property to give away in any manner without contingencies, is a user or consumer and is liable for the tax thereon; such property includes advertising gifts and articles given as prizes, premiums, and for goodwill.
Where the donor of a tangible personal property gift and the receiver of the gift are involved in other financial dealings and the gift is contingent upon the "donee" entering into other transactions, the transfer of taxable property is subject to sales tax as a quid pro quo sale. Where the gift receiver's true object is to obtain the tangible personal property "gift", or the value of the "gift" exceeds the other values obtained by the "donee", the "donor" must remit sales tax on the fair market value of the taxable tangible personal property. Where the gift is secondary to the other transactions, the donor shall be subject to sales tax on their acquisition cost of the property. Examples include a service station giving a case of soda pop to everyone who buys over a minimum amount of gasoline, the soda pop is treated as sold by the service station at the station's cost.
Special Rule 22. Hotels and Motels.
Such supplies as toilet tissue, soap, shoeshine cloths, clothes bags, matches, facial tissue, coffee and other items available for guests use are not subject to sales or use tax at the time of purchase by the hotel or motel. These items are deemed supplied to the guest as part of the taxable sale of accommodations. This exemption is based on resale of these consumables in a taxable transaction, and does not apply to rooms rented continuously for over thirty days that are not subject to sales tax under § 39-26-704(3), C.R.S.
Linens, furniture, pool equipment and supplies, and similar items are subject to sales or use tax at the time of purchase by the hotel or motel. [(See Colorado Springs v. Inv. Hotel Properties, 806 P2d375 (Colo. 1991)]
If a hotel or motel operates a restaurant or lounge, see Special Rule13 for "Eating and Drinking Establishments".
[The following added 2002.]
Banquet and Meeting Rooms.
A room used exclusively for a banquet, meeting or sales/display room is not subject to Colorado sales tax on charges for these uses. A room or suite with beds cannot qualify as exclusively used for any of the above exempt purposes.
Utilities.
Electricity, any gas and firewood are subject to Colorado sales tax as purchases at retail when acquired by hotel or motel operators for heating or lighting rooms, hallways, service areas and parking areas. Consumption of these services or goods is commercial consumption, not residential. No portion of the usage is exempt, regardless of whether use is inside or outside of rooms for accommodations, and regardless of whether use is inside or outside of rooms for accommodations, and regardless of whether the room charge is subject to sales tax or exempt under § 39-26-704(3), C.R.S. Any charge on a billing for rooms purporting to be a separate charge for heat, lights or firewood is fully taxable as a necessary component of the services taxed under § 39-26-102(11), C.R.S. as a charge for the hire of a room or accommodation. The taxability of any separate charge shall not relieve the hotel or motel from the liability for sales or use tax on purchases of electricity, gas or firewood, as they are not resold in an unused condition. [(See Colorado Springs v. Inv. Hotel Properties, 806 P2d375 (Colo. 1991)]
Service Charges.
For a taxable hotel or motel customer, no separate charge may avoid application of the Colorado Sales Tax unless such charge is accurately and reasonable related to a tax exempt service, and is completely disclosed to every customer as an optional service which the customer is not required to use because of the room rental. Thus maid service will always be taxable. Charges for use of pools, spas or health clubs must be fully disclosed and be truly optional, separately stated and reasonably related to the service in order to be exempt. In many cases, this means such services will need to be open to the public and not restricted to guests in order to qualify as non-taxable services not related to the room rental.
Non-Taxable Customers.
Units of government and non-profit schools are exempt from Colorado sales tax, and these entities may rent rooms for employees or representatives without paying Colorado and Colorado collected sales tax, as long as payment is from governmental or school funds. Some of these entities have a Colorado exempt number, but it is not required. Native American tribal governments are governmental units and exempt from Colorado sales tax, where payments are made from tribal funds. Vendors must maintain proof that charges were made under government or school purchase or travel orders, and paid for directly to the seller by warrant or check drawn on government or school funds. Credit cards may be accepted where a credit card is in the name of the exempt entity and the entity is liable.
Charitable entities exempt from Colorado sales tax under § 39-26-718(1)(a), C.R.S. (most IRC 501(c)(3) and (c)(19) qualified entities), may rent rooms for accommodations on behalf of persons employed by or performing charitable functions on behalf of the organizations. Any innkeeper may accept a copy of the exemption form issued by the Colorado Department of Revenue or the number of that exempt account (L98-nnnnn), and payment from the funds of the exempt organization as proof of the right to the exemption. If a charity based outside of Colorado requests exemption, but has no Department "98" number, the vendor should obtain the charities statement that they are qualified under IRC 501(c)(3), or that they are Veterans Organizations under IRC 501(c)(19) and proof of payment from organization funds.
Conventions for Non-Taxable Organizations.
Exempt entities or their associations may provide, and innkeepers may accept as proof of exempt status, a master list of exempt attendees. The master list must identify all individuals of a delegation from the exempt entity(ies) to an event employing an inn, hotel or motel for accommodations. Innkeepers may rely upon such master list as proof of exemption without requiring that the entity be the source of payment to the hotel. Organizations shall provide such master lists in good faith attempts to identify only individuals using accommodations officially on behalf of the exempt organization, within the organizations exempt purpose and with exempt entity funds. Any abuse of this right shall be cause for revocation, and upon notice of revocation of an organization's privilege, innkeepers will return to the individual transaction method of exemption verification stated in the immediately preceding paragraphs.
Innkeepers shall notify organizations using a master list of the requirements of Colorado law and require organizations to acknowledge that schools, charities and other entities may not extend their organizations exemption:
Deposit Forfeits and Cancellation Charges.
Charges made by a hotel or entity listed under § 39-26-102(11), C.R.S. shall be classified for taxation as follows:
Special Rule 23. Ice.
The sale of ice to other sellers of ice, or to sellers of soft drinks for use as a component part of a drink is a wholesale sale and, therefore, is not subject to sales tax.
The sale of ice to manufacturers, carriers, or any other consumer for the purpose of cooling or keeping perishable items of property or for other uses is taxable.
Ice sold for human, domestic home consumption is exempt from sales tax under 39-26-102 (4.5), C.R.S. Ice sold to place food products in a marketable condition may be exempt under 39-26-102(20)(b)(II), C.R.S.
If ice is used for the sole purpose of becoming an ingredient or component of the finished product, as when it is used solely to supply all or a part of the water content of the sausage and luncheon meats, the sale of the ice is a sale for resale. If the ice is not purchased for that sole purpose and the purchase is not otherwise exempt, as in the case of a purchase for resale, then the purchase is subject to tax.
Special Rule 24. Initial Use of Property.
Any item purchased for use or consumption by the purchaser is subject to sales or use tax at the time of purchase, even though the item will be resold later in either its original or altered form. A tax-free purchase is taxable in full at the first time it is used by the purchaser for a nonexempt purpose. (Example: A junkman may not buy a new car tax-free under the theory that the car is going to be junked someday and resold through his business for scrap.)
Special Rule 25. Insurance Companies.
Insurance companies are not exempt from sales or use tax on purchases of tangible personal property for their use or consumption.
Purchases of articles by an insurance company to replace insured damaged property are subject to tax. Articles purchased by the insured with the proceeds of a damage claim settlement received from an insurance company are subject to tax.
Special Rule 26. Janitorial Services.
Items such as hand soaps, paper towels, toilet tissue, and disinfectants which are furnished under a service contract and which are billed to the customer as a separate and distinct item from the service that is performed, are considered retail sales of tangible personal property. Sales tax shall be collected from the customer and remitted by the janitorial service.
If such consumable items are not separately stated but are included in the janitorial service contract, the janitorial service shall be deemed to be the user or consumer of the products and shall pay sales or use tax at the time of purchase.
No sales or use tax is applicable to the charge for service rendered.
Special Rule 27. Linen Services.
Items such as hand soaps, paper towels, toilet tissue, and disinfectants that are furnished by a linen service company under a service contract and consumed at the place of delivery and that are enumerated on the linen service company's delivery ticket are considered property sold at retail and sales tax shall be paid by the customer and remitted by the linen service company. If such consumable materials are not segregated on the delivery ticket, sales or use tax is payable by the linen service company at the time it purchases the items.
Providing laundered linens or uniforms, pickup of soiled linens or uniforms and relaundering and redelivery is generally considered a service and, therefore, the provisioning of that service is exempt from sales tax. However, the linen service provider is considered the user of such items and must pay sales or use tax on the purchase of all equipment, linens, uniforms, similar tangible personal property, replacement or repair materials, soaps, starch, cleaners, hangers, bags, wrap, twine or other consumables used in the performance of the service, whether or not the consumables are delivered to the customer.
A linen service provider who owns the linens, uniforms and other similar tangible personal property provided to the customer may choose to treat the provisioning of such tangible personal property as the rental of such property. If the linen service provider elects to treat the transaction as a rental, the provider can purchase this tangible personal property (including linens, uniforms, hangers, bags, wrap, twine and other tangible personal property delivered to the customer) free of sales tax, but the provider must collect sales tax from the customer on each rental payment, calculated on the full rental price charged, including delivery. Soap, starch, cleaners, water, and other similar tangible personal property consumed by the linen service provider are not exempt from tax when purchased because these are used and consumed by the provider, not the customer. A linen service provider changing from one status to another must notify the Department, distinguish all purchases on a "before and after" change in basis, and cannot claim refund for tax paid on laundered items purchased while operating under the rule applicable to a provider.
Special Rule 28. Maintenance and Decorating Services.
Persons engaged in the business of rendering renovation services, such as painters and paper hangers, floor waxing services and others similarly engaged in repairing and servicing tangible personal or real property under a maintenance or service contract, are rendering a service and are considered the users of the articles used or consumed in such service and must pay sales or use tax on these articles at the time they are purchased.
No sales or use tax applies to charges made for these services.
Special Rule 29. Manufacturers and Prefabricators Acting as Contractors.
A manufacturer or prefabricator may contract to build into real property that which he manufacturers or prefabricates. If the contract provides for the transfer of title to the materials prior to the time the materials are built into the real property, and if the material price is separately stated from the installation price, the manufacturer will be considered to have sold the material, therefore, sales tax must be charged only on the selling price of the material. If not properly segregated, the amount included for installation is also part of the taxable price.
If a manufacturer or prefabricator builds materials into real property and title to the materials does not pass until incorporated in the real property, the manufacturer is a contractor contemplated in the special rule for retailer-contractors and then must follow those rules and pay use tax based on the acquisition cost of the goods withdrawn from inventory, payable at the time of such withdrawal. (However, see Contractors for the tax treatment of an over-the-counter sale of a complete unit.)
Special Rule 30. Modular or Sectional Homes.
A "modular or sectional home" is a factory-built structure (1) that is built to a customer's specifications or inventory standards; (2) that is not titled; (3) that may be approved for HUD/FHA long-term financing; (4) that complies with conventional residence building codes; and (5) that is separate from its delivery chassis.
A manufacturer or dealer who enters into a single contract with the customer is a construction contractor if the contract requires the manufacturer or dealer to sell and install the structure by incorporating it into the realty of the customer before the title to the structure is passed. The manufacturer or dealer is considered to be the final user or consumer of the materials and supplies incorporated into the real estate under the contract. (See Special Rule 10 "Contractors" regarding the payment of sales tax.)
A manufacturer or dealer who merely sells a modular or sectional home to a customer and does not at the time agree to incorporate it into the realty of the customer is considered a retailer and is required to charge sales tax on 52% of the sales price of the structure. (Effective June 7, 1979.)
A modular and sectional home manufacturer or dealer may be both a contractor and a retailer. (See Special Rule 10 "Contractors" as it is related to retail-contractors.)
Special Rule 31. Morticians.
Morticians are considered to be rendering services and making sales of tangible personal property, and shall collect sales tax in accordance with the following rules:
The fact that the remains are consigned to a common carrier for delivery elsewhere, whether inside or outside of Colorado does not change the fact that the articles were first used in Colorado and therefore a Colorado taxable sale. These rules apply to all sales of funeral services and related tangible personal property within the state.
Articles purchased and not to be resold in the normal course of business are subject to tax at the time of purchase. Tax free purchases for resale, when removed from inventory and used in the regular course of his business, must be included in the consumers use tax return for the month in which such articles are removed from inventory.
Special Rule 32. Newspapers, Magazines, and Other Publications.
The sale of newspapers as defined in C.R.S. 1973, 24-70-102, is exempt from sales and use tax. The referenced section reads as follows:
"Every newspaper printed and published daily, or daily except Sundays and legal holidays, or which shall be printed and published on each of any five days in every week excepting legal holidays and including or excluding Sundays, shall be considered and held to be a daily newspaper; every newspaper printed and published at regular intervals three times each week shall be considered and held to be a tri-weekly newspaper; every newspaper printed and published at regular intervals twice each week shall be considered and held to be a semi-weekly newspaper; and every newspaper printed and published at regular intervals once a week shall be considered and held to be a weekly newspaper."
This exemption on sales of newspapers may not be extended to include: magazines, trade publications or journals, credit bulletins, advertising pamphlets, circulars, directories, maps, racing programs, reprints, newspaper clipping and mailing service or listings, publications that include an updating or revision service, book or pocket editions of books or other newspapers not otherwise qualifying under the above paragraph.
A publisher who only makes sales of newspapers is not required to obtain a store license or a sales tax license. The publisher shall pay sales or use tax upon all purchases of tangible personal property, except newsprint, printers ink, and electricity or gas used in the production of the newspaper product. If the newspaper publisher makes retail sales of other articles delivered in Colorado, he shall obtain a store license or a sales tax license and collect sales tax, and may purchase such articles tax free for resale.
Magazines, periodicals, trade journals, etc., are tangible personal property whose retail sale is taxable.
Subscriptions to such publications taken within this state and sent to a publishing house outside the state, where the publication is mailed directly to the subscriber, are subject to the retailer's use tax. Where such publications are printed and sold within this state, the selling price (subscription price) is taxable. If the publication is printed in Colorado and delivery is made out of Colorado, the sale is not taxable.
Trade journals, advertising pamphlets, circulars, etc., which are to be distributed free of charge and are distributed by means of house to house delivery are not exempt from sales tax. However, items attached to or inserted in and distributed with newspapers, or which are considered "direct mail advertising materials", as this term is defined in the sales tax statutes, are exempt from sales tax, effective September 1, 1992.
Organizations which produce and distribute free trade publications, etc., are deemed to be purchasers for their use or consumption and are subject to tax based on the purchase price of the tangible personal property used.
Special Rule 33. Optical Sales and Services.
Special Rule 34. Photofinishers.
Photofinishers are engaged in the business of selling tangible personal property to their customers and such sales are taxable. Purchases of materials that become ingredients or component parts of the finished picture, such as mounts, frames, and sensitized paper are not taxable because these items are purchased by the photofinisher for resale. Conversely, purchases of materials that do not become a part of the product sold to the customer are taxable to the photofinisher.
Special Rule 34.5. Photographers.
A photographer is performing a service subject to provisions of the Service Enterprises in Special Rule 40. If this services is specifically bargained for without regard to the tangible personal property involved, and if the value of the service is greater than the property transferred, no tax is collected from the purchaser but the photographer must pay tax on purchases of materials used to perform this service. Because the photographer is providing a service and not manufacturing photographs all equipment and cameras used by the photographer are subject to sales tax upon their purchase.
Special Rule 35. Printers and Printing.
Sales of catalogues, books, letterheads, bills, envelopes, folders, advertising circulars, and other printed matter are taxable retail sales if the purchaser does not resell the articles but uses or consumes them as by distributing them free. Except as herein stated, a printer may not deduct from the selling price any charge for labor or service in performing the printing, even though the labor or service charges may be billed separately from the charge for stock. The labor or service is expended in the production of the article sold; consequently, it is manufacturing labor incorporated in the product.
If separately stated on the invoice the services of typesetting, color separation, and design, art and camera mechanicals performed by a printer or his subcontractor for a customer or another printer is not taxable.
On commercial printing of postal cards or stamped envelopes purchased from the United States Postal Service, the amount subject to tax does not include the amount of postage involved.
Printed matter which is partially printed, invoiced to the customer, held in stock for further imprinting, and finally invoiced for subsequent imprinting is taxable on the full price charged by the printer for the item. Sales tax must be collected on the selling price of each part of the job. The subsequent imprinting before delivery is deemed to be completion of the initial sale, not a separate transaction.
Exempt purchases of tangible personal property for resale include:
Printers who are just performing a service will be subject to those rules given in Special Rule 40 "Service Enterprises". Printers ink and newsprint are exempt under C.R.S. 1973, 39-26-102(21), but all other above listed items are subject to use tax when applied to property which is not sold.
Pre-press preparation materials (which shall be defined as light sensitive films, plates, and proofing materials) shall qualify as exempt purchases of tangible personal property to the extent such items are utilized for the production of a specific product for a specific customer and title passes to the customer as part of the total sale, and adequate cost records for the particular job showing amount of pre-press preparation material are retained by the printer. In addition, if the final product is tax exempt because it is being shipped out of state by common carrier or otherwise, it will be necessary for the printer to be responsible for the amount of use tax to the Department. The basis for this requirement is that possession was taken in Colorado by the printer as agent for the customer of the pre-press preparation materials in order to produce the final product which itself is exempt from tax because it is shipped in interstate commerce. If separately invoiced as herein provided, pre-press preparation materials used in the production of a product sold and delivered to a tax exempt entity will not be deemed subject to the payment of use tax by the printer.
Except as herein stated with respect to out of state shipments, in order to avoid liability for the payment of use tax on pre-press preparation materials, the printer must maintain adequate records of such materials in detail as to each specific job, so that the indication of pre-press material designation on the ultimate billing can be determined upon audit and segregated from other pre-press materials, manufacturing aids or plant property. There must be an audit trail which clearly reflects the passing on to the customer of a particular item of pre-press preparation material and collection of sales tax on a particular invoice when such sales are subject to tax.
A printer may at times retain a customer's property in his place of business. When tangible personal property is retained in the printer's place of business, the department may examine the various records applicable to this property, such as who is liable for the payment of insurance and personal property tax on the property, who is allowed to deduct the depreciation expense on the property, and who benefits from salvage of the item, in making a determination of the ownership of the property.
Special Rule 36. Private Clubs.
Private clubs such as country clubs, athletic clubs, fraternal organizations, or organizations of persons formerly in the armed services of the United States are subject to the tax when they sell tangible personal property at retail or do any of the other things subject to the tax as provided in the Act. This is true even though all transactions are with members.
Special Rule 37. Ready-Mix Concrete.
Ready-mix concrete is taxable on the delivered price, which includes minimum load and transportation charges. Standby charges charged after arrival at the destination are not taxable if segregated on the customer's invoice.
Special Rule 38. Repossessed Property.
If the repossessor of tangible personal property sold the property to the person from whom it was taken and remitted the tax on the total selling price, the retailer-repossessor may deduct the uncollected selling price from the gross sales on the sales tax return for the period during which the repossession occurred. Repossessed property must be held exclusively for resale by a person holding a valid sales tax license. The subsequent retail sale of the repossessed property is subject to sales tax.
No deduction or other credit may be taken from gross sales on account of the repossession when:
A seller is not liable for sales or use tax on the transaction of repossessing tangible personal property on which the seller retained a security interest so long as the repossessed property is placed in the repossessor's inventory and held for resale (at retail or wholesale). Repossessed property converted to personal or business use is subject to sales or use tax calculated at the fair market value at the date of conversion.
Special Rule 39. Sand and Gravel.
Sand and gravel removed from the ground becomes tangible personal property and are subject to the sales or use tax that applies to retail sales of tangible personal property. Sales of sand and gravel are taxable unless sold to a licensed vendor for resale.
The retailer of sand and gravel who removes sand and gravel stocks to fulfill his own construction obligations is subject to sales or use tax on the acquisition cost of the products used at the time of conversion to his own use or consumption.
Persons who purchase the right to remove sand and gravel from another's land are subject to a use tax on the purchase price of the sand and gravel when removed, unless the same is held for resale.
Special Rule 40. Service Enterprises.
Persons engaged in the business of rendering service are consumers, not retailers, of the tangible personal property which they use incidentally in rendering the service. Tax, accordingly, applies to the sale of the property to them. If in addition to rendering service they regularly sell tangible personal property to consumers, they are retailers with respect to such sales and they must obtain a license, file returns, and remit tax on such sales.
Example: A film company contracts to make a ski film for a firm owning a resort. The cost to the resort for the original film is $25,000. Additional reels may be purchased for $250.00 each. The $25,000 charge for the first reel of film is not subject to tax as the film company is charging for their services in producing tangible personal property, the transfer of which is incidental to the performance of the service. The sale of additional reels at $250.00 would, however, be subject to tax.
The basic distinction in determining whether a particular transaction involves a sale of tangible personal property or the transfer of tangible personal property incidental to the performance of a service is one of the true objects of the contract; that is, if the real object sought by the buyer is the service per se, the transaction is not subject to tax even though some tangible personal property is transferred. For example, a firm which performs business advisory, record keeping, payroll and tax services for small businesses and furnishes forms, binders, and other property to its clients, as an incident to the rendition of its services, is the consumer and not the retailer of such tangible personal property. The true object of the contract between the firm and its client is the performance of a service and not the furnishing of tangible personal property. Similarly, an idea may be expressed in the form of tangible personal property and that property may be transferred for a consideration from one person to another, however, the person transferring the property may still be regarded as the consumer of the property. Thus, the transfer to a publisher of an original manuscript by the author thereof for the purpose of publication is not subject to taxation. The author is the consumer of the paper on which he has recorded the text of his creation. However, the tax would apply to the sale of artistic expressions in the form of paintings and sculptures even though the work of art may express an original idea since the purchaser desires the tangible object itself; that is, since the true object of the contract is the work of art in its physical form.
When a transaction is regarded as a sale of tangible personal property, tax applies to the gross receipts from the furnishing thereof, without any deductions on account of the work labor, skill, thought, time spent, or other expense of producing the property.
A research and development contract is distinguished from a contract for the manufacture of a custom made item. In the latter, the research, design, etc., although necessary to the manufacture of the item, is incidental to the primary purpose of the contract. Generally, custom made items are for consumption or resale. The buyer wants the item for its intrinsic value as an item, and is not interested in the data developed in the course of its manufacture. In such contracts, the entire contract price is subject to tax if the tax applies. A person contracting for research and development is primarily contracting for information which is intangible. Generally, the person contracting for information is going to use it to manufacture and sell some item of tangible personal property.
The development of the information in a research and development contract is not a sale of tangible personal property. It is a service. Since the information such as plans, design, and parts lists, etc., cannot ordinarily be conveyed orally, the information is conveyed on paper. The transfer of the information on paper is not a sale of tangible personal property and the transfer is incidental to the service of developing information. In certain instances, the information cannot be conveyed without the transfer of a prototype. In these cases, the transfer of the prototype is incidental to the transfer of the information and is not a sale of the prototype.
In a true research and development contract where a prototype is manufactured, the researcher (taxpayer) owes use tax on the materials used to construct the prototype since it was used to compile data, design, drawings, etc. The measure of the tax is the cost of the materials going into the manufacture of the prototype as well as all other materials consumed.
Contracts for research work which require only the development of ideas, plans, engineering data, etc., do not constitute sales of tangible personal property although models and drawings are furnished to convey such ideas.
If thereafter an entirely separate contract is entered into for the production of the finished product, tax applies to the gross receipts received from the sale of that finished product which gross receipts will not be deemed to include the charges for the drawings, visualizations, etc., performed under a separate agreement.
Example: Original construction plans- A $50 charge for original plans made according to the desires of each person interested in converting existing buses or van trucks into "house cars" would not be subject to tax. The total charge would be subject to tax if the plan sold was merely a duplicate of a plan drawn for a preceding customer. The planner is the consumer of the paper and other materials used to present the plan.
Special Rule 41. Tools, Jigs, Dies, Patterns, Molds, Etc.
A person who makes and sells tools, jigs, dies, patterns, molds, and similar items to a customer for use in his manufacturing or processing, is making retail sales of the articles and is required to collect and remit the sales tax. After using such items the purchaser may resell them (as to the customer for whom he is manufacturing articles); however, such resale does not exempt the sale first described above because that customer purchased the article primarily for use and not for resale. If an article is sold to a customer after use by the seller, the sale is taxable.
Tools, jigs, dies, patterns, molds or other similar items that qualify as manufacturing machinery, parts thereof or machine tools are exempt from tax (See, § 39-26-709(1), C.R.S.) for the general sales tax exemption and § 39-30-106, C.R.S. for exemptions of such items in enterprise zones). Molds or similar machine tools are exempt when held and used by a subcontract parts producer if the tools would have been exempt in the hands of the manufacturer. Special districts, municipalities and counties have an option to exempt machines and machine tools from their local taxes. See Department publication DRP 1002 for a complete listing of local jurisdictions that exempt these items.
Special Rule 42. 2002 Upholsterers.
An upholsterer who is engaged in the repair, recovering, reupholstering or similar work on a customer's property is engaged in the sale of tangible personal property and accordingly, will charge his customers sales tax on the tangible personal property used in this service. The upholsterer must separately state the tangible personal property and the service or labor charges on his billing to his customer.
A sale by the upholsterer of upholstery material, manufactured articles, or other tangible personal property to a retail customer, without service rendered in connection with the sale, is taxable on the full selling price of the property.
An upholsterer who purchases property which he upholsters and then offers for sale is required to charge sales tax on the full selling price of such property. The labor to process and prepare for sale to a customer is a taxable part of the transaction of sale. The labor to reupholster furniture previously owned by a customer is a service when the customer owns the furniture and the only property transferred sale is the upholstery fabric, staples and glue.
Upholstery material and other items of tangible personal property that become a part of the upholstered item may be purchased tax-free, but he must pay sales or use tax on those items used or consumed that do not become a part of the completed upholstered property.
Special Rule 43. Prepaid Wireless Telecommunication Service Surcharges.
Basis and Purpose. The basis for this rule is § 39-21-112(1), § 29-11-101, § 29-11-102.5, § 29-11-102.7, § 40-17-102, § 40-17-103 C.R.S. The purpose of this rule is to establish registration, collection, and payment procedures, as required by statute, to collect and remit the enhanced 911 and telecommunications relay service surcharges, to calculate the amount on which the surcharges are imposed, and to establish other necessary rules.
Special Rule-44. Marketplaces Owned, Operated, or Controlled by Marketplace Facilitators.
Basis and Purpose. The statutory bases for this rule are sections 39-21-112(1), 39-21-103, 39-26-102, 39-26-103, 39-26-104, 39-26-105, 39-26-106, 39-26-109, 39-26-116, 39-26-118, 39-26-122, C.R.S. The purpose of this rule is to establish requirements and conditions applicable to sales made in Colorado in or through marketplaces owned, operated, or controlled by marketplace facilitators.
Special Rule 45. County Lodging Taxes.
Basis and Purpose. The bases for this rule are sections 24-35-108(1)(e), 29-2-106(5), 30-11-107.5, and 39-21-112(1), C.R.S., section 39-26.1-113, C.R.S. (1987) (1987 Colo. Sess. Laws, ch. 176, §12), and section 29-2-108, C.R.S. (1991) (1991 Colo. Sess. Laws, ch. 316, §3). The purpose of this rule is to establish the effective date for the restoration of a rate of two percent for county lodging taxes adopted at such rate by resolution, but that were temporarily reduced by operation of certain statutory provisions that have since been repealed.
1 CCR 201-5