Chapter 15 - § 15.3 • SALES AND USE TAX

• Jurisdiction: Colorado

§ 15.3 • SALES AND USE TAX

§ 15.3.1—General Discussion

Introduction

A sales tax is an excise tax levied by a jurisdiction upon the consideration exchanged in the transaction. Taxes collected during a defined period of time are reported and remitted by a retailer on all transactions involving taxable products or services. Generally, Colorado does not tax many services, and those that are must be expressly described in the enabling statute. A use tax is an excise tax reported and paid by the purchaser when a sales tax was not collected (or not fully collected at the correct rate) by the retailer on taxable transactions. Perhaps no area of state and local tax law causes more confusion and exposure for nonprofit organizations than sales and use tax, particularly in Colorado. The contributing factors to this potential confusion include the difference in rules applicable to purchases by an exempt organization and the sales of taxable materials or services by the same organization. Also, Colorado frequently has different sales and use tax rules applicable to the state, state-administered local jurisdictions, and "home rule jurisdictions." Home rule jurisdictions pose unique local tax issues for nonprofit organizations because the Colorado Constitution authorizes certain local governmental entities, commonly known as home rule jurisdictions, to enact and enforce their own revenue codes. Colo. Const. art. XIV, § 16 (counties) and art. XX, § 6 (cities and towns). Except for a few constitutional limitations, there is nothing requiring home rule jurisdictions to have the same municipal revenue codes or exemptions from taxation. There have been efforts made through cooperation between business and home rule associations to standardize many features and terms, but there is still no uniformity overall. A significant discussion about home rule implications is beyond the scope of this book. Nonprofit organizations need to be aware of the rules and procedures for all of the jurisdictions where they are located and where they conduct potentially taxable activities. To offer some guidance, Denver's sales and use tax code will be discussed from time to time where relevant, but by no means is Denver necessarily uniform with other home rule jurisdictions.

Taxing Jurisdictions

The State of Colorado, the Regional Transportation District (RTD), the Scientific and Cultural Facilities District (SCFD), the Denver Football Stadium District (FD), and about 254 Colorado counties, cities, towns, and other special taxing districts impose a tax on the "sale" of tangible personal property occurring within their respective jurisdictions (or, in some instances, the "use" of such property in the jurisdiction if the purchase escaped local taxation because it occurred outside the jurisdiction). Another issue that can prove problematic is what area a sales location or customer (if delivered) falls in. The exact location can make a difference on which jurisdictions apply a tax. The state and some local jurisdictions have approved sales tax compliance software vendors. If one relies on that software to determine the tax rate, the taxpayer is held harmless if in fact it turns out there was an error in the rate.

Tax Rates

The tax rate imposed by each governmental unit can be different. In fact, even within a city or county the rate can be different depending on the boundaries of overlapping special jurisdictions or the nature of the taxable sale. There are often different rates for car rentals, hotel accommodations, and restaurant food and drink. Therefore, the total tax rate that applies to a sale or use must be calculated by adding the tax rate imposed by each governmental unit having jurisdiction over the locale where the sale or use occurs. The DOR website includes a search option to calculate the tax rates for specific locations.

Examples

A regular sale (excluding cars, motel rooms, food, etc.) in the City of Denver is subject to a total tax of 7.72 percent, consisting of the state tax of 2.9 percent, the RTD tax of 1.0 percent, the SCFD tax of 0.1 percent, the FD tax of 0.1 percent, and the city tax of 3.62 percent.

A regular sale in the City of Colorado Springs is subject to a total tax of 7.4 percent, consisting of the state tax of 2.9 percent, the county tax of 1.0 percent, the city tax of 2.5 percent, and the Pikes Peak Transit District tax of 1.0 percent.

A regular sale in the City of Fort Collins is subject to a total tax of 7.55 percent, consisting of the state tax of 2.9 percent, the county tax of 0.8 percent, and the city tax of 3.85 percent.

State Statutes and Local Ordinances

The legislative authority for imposing sales and use tax also differs depending upon the nature of the governmental unit imposing the tax.

Sales and use taxes imposed by the state, special taxing districts, counties, and "statutory" cities and towns are governed by the same state statutes. See C.R.S. §§ 39-26-101, et seq. These taxes generally are referred to as "state-collected taxes" because they are collected and administered by the Colorado DOR.

Sales and use taxes imposed by home rule cities, on the other hand, generally are governed by city ordinance. Those ordinances vary from city to city, and can be interpreted and/or administered quite differently than the comparable state statutes. See the DOR's website for a current list of Colorado's home rule cities and tax rates. The rates range from 2 percent to 5 percent. These taxes are sometimes referred to as "self-collected" taxes because they are collected and administered by each taxing jurisdiction. Denver's revenue code is contained in Chapter 53 of the Denver Municipal Code and is available on its website, http://denvergov.org.

Exemptions

For both the State of Colorado and the City and County of Denver, sales of personal property (or taxable services) to qualified charitable organizations for use exclusively in the conduct of their regular charitable functions and activities generally are exempt from sales or use tax, although the definition of what constitutes a charitable organization may differ. However, sales of property by charitable organizations, regardless of whether part of a charitable activity, may not be exempt. These provisions will be discussed in greater detail below.

§ 15.3.2—Applying for an Exemption

Application Required

Charities are not automatically exempt from sales and use taxes. They must apply in writing for an exemption. Organizations usually are required to submit copies of their federal exemption letter, articles of incorporation, current financial statements and a recent certificate of standing from the Secretary of State to the Colorado Department of Revenue in applying for an exemption. The burden of proving eligibility for an exemption is on the applicant. See C.R.S. § 39-26-703 and Sec. Life & Accident Co. v. Heckers, 495 P.2d 225 (Colo. 1972).

State-Collected Sales and Use Tax

One application for exemption to the Colorado Department of Revenue will cover exemption from:

1) Colorado's sales and use tax under C.R.S. §§ 39-26-101, et seq.;
2) The RTD's sales tax under C.R.S. § 32-9-119(2) (and its use tax as recognized in Howard Electrical & Mechanical, Inc. v. Department of Revenue), see Howard Elec. & Mech., Inc. v. Dep't of Revenue, 748 P.2d 1321 (Colo. 1987);
3) The SCFD's sales tax under C.R.S. § 32-13-110;
4) The FD's sales tax under C.R.S. § 32-14-114;
5) The sales or use tax imposed by any county or statutory city or town under C.R.S. § 29-2-105(1)(d); and
6) The sales or use tax imposed by any home rule city that has opted to have the state collect its sales and use taxes under C.R.S. § 29-2-106(4)(a).

Locally Collected Sales and Use Tax

Any home rule jurisdiction that collects its own sales and use taxes is likely to have entirely separate requirements for the charitable exemption qualifications, including an independent exemption application process. The materials that must be submitted with an application will vary from city to city. The City and County of Denver requires an organization to submit a copy of its articles of incorporation, current financial statements, letters or certificates from other entities granting an exemption (e.g., the IRS and the DOR), a description of its charitable or religious function, and a list of the types of items that typically will be purchased by the organization.

Multiple Applications Necessary

If an exempt organization has a presence in multiple municipal jurisdictions, it is necessary to file separate exemption applications within each home rule location to be entirely exempt from sales and use taxes in Colorado (let alone any other state).

§ 15.3.3—State and State-Administered Sales and Use Tax Exemptions

Charitable Exemption

Colorado law provides for an exemption from state sales tax for sales to a qualified charitable organization. See C.R.S. § 39-26-102(2.5) and Colo. Department of Revenue FYI Sales No. 2. For this purpose...