State and Local Sales and Use Tax Exemptions for Colorado Charitable Organizations

• Publication year: 2000
• Pages: 55
• Citation: Vol. 29 No. 7 Pg. 55

29 Colo.Law. 55 Colorado Lawyer 2000.

2000, August, Pg. 55. State and Local Sales and Use Tax Exemptions for Colorado Charitable Organizations

---

55

Vol. 29, No. 7, Pg. 55

The Colorado Lawyer
August 2000
Vol. 29, No. 8 [Page 55]

Specialty Law Columns
Advising Nonprofit Organizations
State and Local Sales and Use Tax Exemptions for Colorado Charitable Organizations
by James D. Butler
C 2000 James D. Butler

Charitable organizations have long enjoyed exemption from most types of federal, state, and local taxes.1 Colorado state and local governments generally follow this tax policy granting exemption to charitable organizations from the principal types of taxes imposed in this state (income property, and sales and use). However, in Colorado, the requirements for obtaining a charitable exemption vary substantially depending on the particular tax at issue

Most charitable organizations seek initial confirmation of their "charitableness" in the form of an application to the federal government for recognition of "501(c)(3)" status. Many organizations erroneously assume that an Internal Revenue Code § 501(c)(3) designation confirms their tax-exempt status for all tax purposes. Actually, a 501(c)(3) designation conclusively establishes tax-exempt status for only one Colorado tax—the state income tax.2 For other Colorado state and local taxes, different procedural requirements apply, and to varying degrees, different substantive requirements apply as well.

A previous article written by the author described the requirements that apply to charitable exemption from the property tax.3 This article extends the discussion to state and local sales and use taxes.

State Sales and Use Taxes

Colorado imposes a tax on most purchases of tangible personal property that will be used for any purpose other than resale.4 The tax also applies to purchases of limited types of services.5 In the case of in-state sales by retailers, retailers usually collect the tax as an add-on to the purchase price.6 The retailers are required to remit these "sales tax" collections to the state as the state’s agent.7 In the case of out-of-state purchases or other purchases that escape retailer collection, purchasers are obligated to pay "use taxes" directly to the state.8 Use taxes are designed to protect the sales tax base and often are referred to as "complementary" or "compensating" use taxes.9 The ultimate obligation to pay these taxes falls on consumers, regardless of whether the taxes are labeled sales or use taxes.10

The Charitable Exemption

Purchases of otherwise taxable goods and services by charitable organizations are exempt from the Colorado state sales and use tax, provided that the purchases are made "in the conduct of [the organization’s] regular charitable functions and activities. . . ."11 The state sales tax statute defines "charitable organization" in language that is virtually § 501(c)(3) verbatim.12 Accordingly, absent differing interpretations of the same language, a federal 501(c)(3) determination should be tantamount to a state sales and use tax determination of charitable exempt status.

The Colorado Department of Revenue’s ("CDOR’s") charitable status regulations expressly state that a federal determination is not binding on the CDOR.13 However, the regulations also state that the CDOR will honor a federal determination unless it chooses to make an independent investigation.14 As a practical matter, the author’s experience is that the state does not re-evaluate federal 501(c)(3) determinations for sales and use tax purposes.

An organization possessing a federal 501(c)(3) determination should obtain a state sales and use tax exemption certificate from the CDOR. To obtain such a certificate, the organization must submit to the CDOR a copy of its federal exemption determination and a copy of its financial statements that show sources and uses of funds.15

As noted above, Colorado retailers generally are required to...