Colorado § 39-26-104 - Property and services taxed - definitions.

§ 39-26-104. Property and services taxed - definitions.

(1) There is levied and there shall be collected and paid a tax in the amount stated in section 39-26-106 as follows:

(a) On the purchase price paid or charged upon all sales and purchases of tangible personal property at retail, including, but not limited to, the amount charged for mainframe computer access, photocopying, and packing and crating;

(b) (I) In the case of retail sales involving the exchange of property, on the purchase price paid or charged, including the fair market value of the property exchanged at the time and place of the exchange, excluding, however, from the consideration or purchase price, the fair market value of the exchanged property if:

(A) Such exchanged property is to be sold thereafter in the usual course of the retailer's business; or

(B) Such exchanged property is a vehicle and is exchanged for another vehicle and both vehicles are subject to licensing, registration, or certification under the laws of this state, including, but not limited to, vehicles operating upon public highways, off-highway recreation vehicles, watercraft, and aircraft.

(II) The exchange of three or more vehicles of the same type by any person in any calendar year in transactions subject to the provisions of this article shall be prima facie evidence that such person is engaged in the business of selling vehicles of the type involved in such transactions and that he is thereby subject to any licensing requirements necessary to engage in such activity.

(c) (I) Upon telephone and telegraph services, whether furnished by public or private corporations or enterprises for all intrastate telephone and telegraph service. On or after August 1, 2002, mobile telecommunications service shall be subject to the tax imposed by this section only if the service is provided to a customer whose place of primary use is within Colorado and the service originates and terminates within the same state. In accordance with the "Mobile Telecommunications Sourcing Act", 4 U.S.C. secs. 116 to 126, as amended, on or after August 1, 2002, mobile telecommunications service provided to a customer whose place of primary use is outside the borders of the state of Colorado is exempt from the tax imposed by this section.

(II) (A) If a customer believes that a tax, charge, or fee assessed by the state in the customer's bill for a mobile telecommunications service is erroneous, or that an assignment of place of primary use or taxing jurisdiction on said bill is incorrect, the customer shall notify the home service provider in writing within two years after the date the bill was issued. The notification from the customer shall include the street address for the customer's place of primary use, the account name and number for which the customer seeks a correction, a description of the alleged error, and any other information that the home service provider may require.

(B) No later than sixty days after receipt of notice from a customer pursuant to sub-subparagraph (A) of this subparagraph (II), the home service provider shall review the information submitted by the customer and any other relevant information and documentation to determine whether an error was made. If the home service provider determines that an error was made, the home service provider shall refund or credit to the customer any tax, fee, or charge erroneously collected from the customer for a period not to exceed two years. If the home service provider determines that no error was made, the home service provider shall provide a written explanation of its determination to the customer.

(C) Any customer that believes a tax, charge, or fee assessed by the state in the customer's bill for mobile telecommunications services is erroneous, or that an assignment of place of primary use or taxing jurisdiction on said bill is incorrect, may file a claim in the appropriate district court only after complying with the provisions of this subparagraph (II).

(III) As used in this paragraph (c), unless the context otherwise requires:

(A) "Act" means the federal "Mobile Telecommunications Sourcing Act", 4 U.S.C. secs. 116 to 126, as amended.

(B) "Customer" means customer as defined in section 124 (2) of the act.

(C) "Home service provider" means home service provider as defined in section 124 (5) of the act.

(D) "Mobile telecommunications service" means mobile telecommunications service as defined in section 124 (7) of the act.

(E) "Place of primary use" means the place of primary use as defined in section 124 (8) of the act.

(F) "Taxing jurisdiction" means taxing jurisdiction as defined in section 124 (12) of the act.

(IV) For telephone and telegraph services provided on or after July 1, 2003, when nontaxable services are aggregated with and not separately stated from taxable services, the provider of such services shall collect the tax imposed by this article only on intrastate telephone and telegraph services. The provider of such services shall maintain for three years documentation of the services provided that are taxable and nontaxable. Such documentation is subject to audit, and the service provider shall be liable for any uncollected tax. A service provider shall notify the executive director of the department of revenue of the percentages of taxable and nontaxable services in a package of aggregated services within thirty days of use on any invoice.

(c.5) (I) Beginning July 1, 2025, upon telephone and telegraph services, whether furnished by public or private corporations or enterprises for interstate telephone and telegraph service, if the telephone and telegraph service originates or terminates in the state and is charged to a Colorado address.

(II) In accordance with the federal "Mobile Telecommunications Sourcing Act", 4 U.S.C. secs. 116 to 126, as amended, mobile telecommunication service provided to a customer whose place of primary use is outside of the borders of the state of Colorado is exempt from the tax imposed by this section.

(III) A taxpayer who pays a tax legally imposed by another state on a telephone or telegraph service that is taxable pursuant to this subsection (1)(c.5) is allowed a credit against the tax imposed by this section in an amount equal to the amount of the tax imposed on a telephone or telegraph service by the other state. A credit allowed pursuant to this subsection (1)(c.5)(III) shall not exceed the tax imposed on a telephone or telegraph service pursuant to this section.

(d) Repealed.

(d.1) Effective July 1, 1980, for gas and electric service, whether furnished by municipal, public, or private corporations or enterprises, for gas and electricity furnished and sold for commercial consumption and not for resale, upon steam when consumed or used by the purchaser and not resold in original form whether furnished or sold by municipal, public, or private corporations or enterprises;

(d.2) Repealed.

(e) Upon the amount paid for food or drink served or furnished in or by restaurants, cafes, lunch counters, cafeterias, hotels, social clubs, nightclubs, cabarets, resorts, snack bars, caterers, carryout shops, and other like places of business at which prepared food or drink is regularly sold, including sales from pushcarts, motor vehicles, and other mobile facilities. Cover charges shall be included as part of the amount paid for such food or drink. However, meals provided to employees of the places mentioned in this paragraph (e) at no charge or at a reduced charge shall be exempt from taxation under the provisions of this part 1.

(f) On the entire amount charged to any person for rooms or accommodations as designated in section 39-26-102 (11).

(2) Repealed.

(3) (a) Except as provided in subsections (3)(b) and (3)(c) of this section, for purposes of determining where a sale of tangible personal property, commodities, or services is made, the following rules apply:

(I) If tangible personal property, commodities, or services are received by the purchaser at a business location of the seller, the sale is sourced to that business location;

(II) If tangible personal property, commodities, or services are not received by the purchaser at a business location of the seller, the sale is sourced to the location where receipt by the purchaser occurs, including the location indicated by instructions for delivery to the purchaser, if that location is known to the seller;

(III) If subsections (3)(a)(I) and (3)(a)(II) of this section do not apply, the sale is sourced to the location indicated by an address for the purchaser that is available from the business records of the seller that are maintained in the ordinary course of the seller's business, when use of this address does not constitute bad faith;

(IV) If subsections (3)(a)(I), (3)(a)(II), and (3)(a)(III) of this section do not apply, the sale is sourced to the location indicated by an address for the purchaser obtained during the consummation of the sale, including, if no other address is available, the address of a purchaser's payment instrument, when use of this address does not constitute bad faith; or

(V) If subsections (3)(a)(I), (3)(a)(II), (3)(a)(III), and (3)(a)(IV) of this section do not apply, or if the seller is without sufficient information to apply the rules set forth in subsections (3)(a)(I), (3)(a)(II), (3)(a)(III), and (3)(a)(IV) of this section, the sale is sourced to the location indicated by the address from which the tangible personal property, commodity, or service was shipped.

(b) (I) The lease or rental of tangible personal property or commodities, but not property identified in subsection (3)(b)(II) or (3)(b)(III) of this section, not leases or rentals based on a lump sum or accelerated basis, and not on the acquisition of property for lease, are sourced as follows:

(A) For a lease or rental that requires recurring periodic payments, the first periodic payment is sourced the same as a retail sale in accordance with subsection (3)(a) of this section. Periodic payments made subsequent to the first payment are sourced to the primary property location for each period covered by the payment. The primary property location is as indicated by an address for the property provided by the lessee that is available to the lessor from its records maintained in the ordinary course of business, when use of this address does not constitute bad faith. The property location is not altered by intermittent use at different locations, such as use of business property that accompanies employees on business trips and service calls.

(B) For a lease or rental that does not require periodic payments, the payment is sourced the same as a retail sale in accordance with subsection (3)(a) of this section.

(II) The lease or rental of motor vehicles, trailers, semi-trailers, or aircraft that do not qualify as transportation equipment is sourced as follows:

(A) For a lease or rental that requires recurring periodic payments, each periodic payment is sourced to the primary property location. The primary property location is as indicated by an address for the property provided by the lessee that is available to the lessor from its records maintained in the ordinary course of business, when use of this address does not constitute bad faith. The location does not change by intermittent use at different locations.

(B) For a lease or rental that does not require recurring periodic payments, the payment is sourced the same as a retail sale in accordance with subsection (3)(a) of this section.

(III) The lease or rental of transportation equipment is sourced in the same manner as a retail sale in accordance with subsection (3)(a) of this section.

(c) Repealed.

(d) As used in this subsection (3), unless the context otherwise requires:

(I) "Purchaser" may include a donee who is designated as such by the purchaser.

(II) "Receipt" or "receive" means taking possession of tangible personal property or commodities or making first use of services, but does not include possession by a shipping company on behalf of the purchaser.

(III) "Transportation equipment" means:

(A) Locomotives and railcars that are utilized for the carriage of persons or property in interstate commerce;

(B) Trucks and truck-tractors with a gross vehicle weight rating of ten thousand one pounds or greater, trailers, semi-trailers, or passenger buses that are registered under the international registration plan and operated under authority of a carrier authorized and certificated by the United States department of transportation or another federal or foreign authority to engage in the carriage of persons or property in interstate or foreign commerce;

(C) Aircraft that are operated by air carriers authorized and certificated by the United States department of transportation or another federal or foreign authority to engage in the carriage of persons or property in interstate or foreign commerce; and

(D) Containers designed for use on and component parts attached or secured on the items set forth in subsections (3)(d)(III)(A) to (3)(d)(III)(C) of this section.

Source: L. 35: p. 1005, § 4. CSA: C. 144, § 4. L. 37: p. 1081, § 1. L. 41: p. 661, § 4. L. 45: pp. 573, 578, §§ 1, 1. CRS 53: § 138-6-4. L. 59: p. 800, § 2. C.R.S. 1963: § 138-5-4. L. 64: p. 817, § 2. L. 78: (1)(e) amended, p. 512, § 1, effective May 5; (1)(b) amended, p. 508, § 2, effective July 1. L. 79: (1)(d) amended, (1)(d.1) and (1)(d.2) added, and (1)(e) R&RE, pp. 1428, 1440, §§ 7, 25, effective July 3. L. 80: (1)(d.1) and (1)(d.2) amended, p. 733, § 3, effective May 2. L. 82: (1)(d.1) amended and (1)(d.2) repealed, pp. 571, 572, §§ 1, 4, effective April 27. L. 2002: (1)(c) amended, p. 253, § 4, effective April 12. L. 2003: (1)(c)(IV) added, p. 2580, § 1, effective June 5. L. 2009: (1)(e) amended, (SB 09-121), ch. 421, p. 2338, § 1, effective June 4. L. 2012: (1)(e) amended, (SB 12-094), ch. 8, p. 23, § 2, effective July 1. L. 2013: IP(1) amended and (2) added, (HB 13-1295), ch. 314, p. 1647, § 4, effective July 1, 2014. L. 2019: IP(1) amended, (2) repealed, and (3) added, (HB 19-1240), ch. 264, p. 2494, § 3, effective June 1. L. 2021: (3)(c)(III) repealed and (3)(c)(IV) added, (SB 21-282), ch. 394, p. 2619, § 1, effective June 30; (1)(a) amended, (HB 21-1312), ch. 299, p. 1796, § 9, effective July 1. L. 2022: (3)(c)(IV) amended, (HB 22-1027), ch. 1, p. 1, § 1, effective January 31. L. 2025: (1)(c.5) added, (HB 25-1296), ch. 202, p. 917, § 15, effective May 16.

Editor's note: (1) Subsection (1)(d) provided for the repeal of subsection (1)(d), effective July 1, 1980. (See L. 79, p. 1440.)

(2) Subsection (3)(c)(IV) provided for the repeal of subsection (3)(c), effective October 1, 2022. (See L. 2022, p. 1.)

Cross references: (1) For the legislative declaration contained in the 2002 act amending subsection (1)(c), see section 1 of chapter 92, Session Laws of Colorado 2002.

(2) For the legislative declaration in the 2013 act amending the introductory portion to subsection (1) and adding subsection (2), see section 1 of chapter 314, Session Laws of Colorado 2013.

(3) For the legislative declaration in HB 21-1312, see section 1 of chapter 299, Session Laws of Colorado 2021.

(4) For the legislative declaration in HB 25-1296, see section 1 of chapter 202, Session Laws of Colorado 2025.

ANNOTATION

Law reviews. For article, "Colorado Sales and Use Tax Consequences in Sales of Businesses", see 11 Colo. Law. 679 (1982). For article, "Recent Developments in Colorado Sales and Use Taxes", see 18 Colo. Law. 2101 (1989). For article, "Taxability of Delivery Services in Colorado Before and After A.D. Stores", see 31 Colo. Law. 97 (May 2002). For article, "The Taxability of Computer Software in Colorado", see 32 Colo. Law. 91 (Dec. 2003). For article, "The Taxability of Mixed Transactions in Colorado", see 33 Colo. Law. 79 (Mar. 2004).

Denial of such credit in computing use tax unconstitutional. It was constitutionally impermissible for the Colorado taxing authorities to deny a trade-in allowance in computing the use tax on a motor vehicle purchased outside the state when such a credit was allowed when the vehicle was purchased in Colorado. Such unequal treatment was discriminatory and constituted an impermissible burden on interstate commerce. Matthews v. State Dept. of Rev., 193 Colo. 44, 562 P.2d 415 (1977).

Obligation for the payment of the tax is upon the consumer whether the tax is called a "sales" tax or a "use" tax. J. A. Tobin Constr. Co. v. Weed, 158 Colo. 430, 407 P.2d 350 (1965).

Use tax is supplementary to the sales tax. Matthews v. State Dept. of Rev., 193 Colo. 44, 562 P.2d 415 (1977).

There was no credit for property exchanged outside state prior to 1978 amendments. Matthews v. State Dept. of Rev., 193 Colo. 44, 562 P.2d 415 (1977).

Electricity taxed under subsection (1)(d.1) is taxed as a service, not as tangible personal property. Dept. of Rev. v. Pub. Serv. Co., 2014 CO 59, 330 P.3d 385.

Subsection (1)(e) intended to impose tax upon food of public-oriented commercial establishments. The nature of the various facilities enumerated in subsection (1)(e) suggests a legislative intent to impose a tax upon meals or food sold by public-oriented commercial establishments, since all the businesses specifically designated as being subject to the tax are establishments ordinarily commercial in nature. Colo. Coll. v. Heckers, 33 Colo. App. 219, 517 P.2d 419 (1973).

Company cafeterias subject to tax. Where company operates cafeterias wherein persons numbering approximately 10,000 might, but need not, patronize the cafeterias, the cafeterias are subject to the tax levied by this section. Bennetts v. Carpenter, 111 Colo. 63, 137 P.2d 780 (1943) (decided prior to 1978 amendment).

College snack bars or student unions. Subsection (1)(e) does not operate to levy a sales tax upon meals or food sold by private colleges in their snack bars or student unions. Colo. Coll. v. Heckers, 33 Colo. App. 219, 517 P.2d 419 (1973).

Nonprofit lodges. Where a lodge is noncommercial and nonprofit and food service is incidental to its primary activities of furthering charitable and educational purposes and is not for pecuniary gain, and, except for rare occasions, the lodge is closed to nonmembers, this section does not apply to its food sales. B.P.O.E. Lodge No. 804 v. State Dept. of Rev., 41 Colo. App. 88, 582 P.2d 1068 (1978).

There is a strong presumption that taxation is the rule and exemption the rare exception. Sw. Catholic Credit Union v. Charnes, 665 P.2d 626 (Colo. App. 1982); Colo. Dept. of Rev. v. Woodmen of the World, 919 P.2d 806 (Colo. 1996); A.D. Store Co., Inc. v. Exe. Dir. of Dept. of Rev., 997 P.2d 1241 (Colo. App. 1999), rev'd on other grounds, 19 P.3d 680 (Colo. 2001).

However, when interpreting a statute, the court must honor the plain meaning of the words when they are clear, and must begin with the proposition that the purchase of personal services is generally not subject to taxation in Colorado; rather, Colorado taxes the purchase of tangible personal property valued at its sales price. A.D. Store Co., Inc. v. Exe. Dir. of Dept. of Rev., 19 P.3d 680 (Colo. 2001).

No exemption for state chartered credit unions. No exemption as to payment of sales taxes is provided to state chartered credit unions. Sw. Catholic Credit Union v. Charnes, 665 P.2d 626 (Colo. App. 1982).

Sales tax may be imposed on sale of cocaine by drug dealer if the sale is construed as a retail, rather than wholesale, transaction. Eggleston v. Colo., 636 F. Supp. 1312 (D. Colo. 1986).

Access services for interstate telephone calls are taxable as intrastate telephone services. Since access services are provided by facilities, equipment, and personnel which are all located entirely within the state of Colorado, they are intrastate in nature and are subject to sales tax in Colorado. AT & T Com. v. Dept. of Rev., 778 P.2d 677 (Colo. 1989).

Personal property which loses its identity when it becomes an integral and inseparable part of realty is not tangible personal property subject to taxation under this section. Raynor Door, Inc. v. Charnes, 765 P.2d 650 (Colo. App. 1988); Noble Energy v. Colo. Dept. of Rev., 232 P.3d 293 (Colo. App. 2010).

The sales tax statute and applicable regulations provide that no service is taxable except those services specifically listed in the statute itself, and services rendered in "installing" or "applying" personal property are not taxable. Alteration services rendered in connection with the sale of a garment are separable from the purchase transaction and are not independently taxable. A.D. Store Co., Inc. v. Exe. Dir. of Dept. of Rev., 19 P.3d 680 (Colo. 2001).

When mixed transaction combining delivery of services and tangible personal property cannot be meaningfully separated, taxability is based on "true object" of the transaction. Noble Energy v. Colo. Dept. of Rev., 232 P.3d 293 (Colo. App. 2010).

Factors to determine the "true object" of a mixed transaction are: (1) The value of the tangible property compared to that of the service; (2) whether there was an alternative method of transfer; (3) the length of time the intangible property provided retains its value; (4) constraints on the buyer's ability to use the tangible property; (5) what is actually done with the tangible property after it has yielded its intangible component; (6) whether the tangible property represents the finished product sought by the buyer; and (7) the skill and expertise used to create the tangible property. City of Boulder v. Leanin' Tree, Inc., 72 P.3d 361 (Colo. 2003); Noble Energy v. Colo. Dept. of Rev., 232 P.3d 293 (Colo. App. 2010); Am. Multi-Cinema v. City of Aurora, 2020 COA 4, 471 P.3d 1139.

Fracturing of oil and gas wells involved services and products that were inseparable. Applying these factors, the "true object" of the transaction is to provide a service to the taxpayer, not the sale of tangible personal property. Accordingly, the transaction was exempt from the sales tax. Noble Energy v. Colo. Dept. of Rev., 232 P.3d 293 (Colo. App. 2010).

General assembly intended for the qualifying "exchange" in subsection (1)(b) to transpire in a single transaction, in which one vehicle is transferred to another person or entity as all or part of the purchase price of another vehicle. Here, plaintiff chose to structure the purchase of the new automobile and sale of the old automobile as two distinct transactions, involving separate parties. The old vehicle was not directly transferred to a person or entity as part of the purchase price for the new vehicle and, therefore, plaintiff cannot qualify for the trade-in allowance credit under this section. Sternal v. Fagan, 989 P.2d 200 (Colo. App. 1999).

When there are multiple transactions, each transaction at which an item is sold to a consumer at retail may be taxed under this section. Furthermore, this section fails to contain an exemption expressing legislative intent that the collected tax be retained against a taxpayer where the applicable tax was paid by another. In the absence of such an intent, court will not presume an exemption. Sternal v. Fagan, 989 P.2d 200 (Colo. App. 1999).