Colorado § 39-26-709 - Machinery and machine tools - definitions.

§ 39-26-709. Machinery and machine tools - definitions.

(1) (a) The following shall be exempt from taxation under the provisions of part 1 of this article:

(I) (Deleted by amendment, L. 2004, p. 1022, § 2, effective July 1, 2004.)

(II) Except as allowed in section 39-30-106, on or after July 1, 1996, purchases of machinery or machine tools, or parts thereof, in excess of five hundred dollars to be used in Colorado directly and predominantly in manufacturing tangible personal property, for sale or profit, including any machinery or machine tools purchased by a business listed in the inventory prepared by the department of public health and environment pursuant to section 30-20-122 (1)(a)(V), C.R.S.; and

(III) (Deleted by amendment, L. 2008, p. 1323, § 8, effective May 27, 2008.)

(IV) Purchases of machinery and machine tools, or parts thereof, used in the production of electricity in a facility for which a long-term power purchase agreement was fully executed between February 5, 2001, and November 7, 2006, whether or not such purchases are capitalized or expensed.

(b) A parent corporation and all closely held subsidiary corporations, as defined in section 39-26-102 (10)(k), shall be considered one person for the purposes of this section and, as a group, shall be subject to the provisions of paragraph (a) of this subsection (1).

(c) As used in this subsection (1):

(I) "Long-term power purchase agreement" means an agreement executed between one or more independent power producers and a provider of retail electric service for a term of no less than ten years, pursuant to which the independent power producer or producers agree to sell all of the production offered for sale from a particular power generation facility for a specified price over a specified term.

(II) "Machinery" means any apparatus consisting of interrelated parts used to produce an article of tangible personal property. The term includes both the basic unit and any adjunct or attachment necessary for the basic unit to accomplish its intended function.

(III) "Manufacturing" means the operation of producing a new product, article, substance, or commodity different from and having a distinctive name, character, or use from raw or prepared materials, including the processing of recovered materials.

(III.5) (A) "Recovered materials" means those materials that have been separated, diverted, or removed from the waste stream for the purpose of remanufacturing, reuse, or recycling or, as allowed by subsection (1)(c)(III.6) of this section, those materials that have been derived from scrap metal or end-of-life-cycle metals for remanufacturing, reuse, or recycling into new metal stock that meets applicable standards for metal commodities sales.

(B) As used in this subsection (1)(c)(III.5), "applicable standards" means standards for recycled commodities recognized by the institute of scrap recycling industries.

(III.6) "Scrap metal processor" means any person who is engaged in the business of processing scrap metals who, from a fixed location, utilizes machinery and equipment for manufacturing ferrous and nonferrous metallic scrap into prepared grades and whose principal product is metallic scrap. The following items are exempt when purchased by a scrap metal processor and used in manufacturing prepared grade recycled metals: Mobile metal shears, stationary metal shears, metal shredders, conveyors used to move metal scrap or stock, loaders utilized to load metal scrap or stock, bailers to bundle metal stock, material handlers utilized for metal scrap or metal stock, excavators, magnets, grapples and torches utilized to break down metal scrap, and all other equipment directly used predominantly in the manufacturing of commodity grade recycled metals.

(IV) "Specified price" means a price set by a long-term power purchase agreement that is not dependent on either the cost of production or the market price of electricity; except that a specified price may provide for a percentage increase over time so long as the percentage increase is specified in the original long-term power purchase agreement and is also not dependent on either the cost of production or the market price of electricity.

(d) For purposes of this subsection (1), direct use in manufacturing is deemed to begin for items normally manufactured from inventoried raw material at the point at which raw material is moved from plant inventory on a contiguous plant site and to end at a point at which manufacturing has altered the raw material to its completed form, including packaging, if required. Machinery used during the manufacturing process to move material from one direct production step to another in a continuous flow and machinery used in testing during the manufacturing process is deemed to be directly used in manufacturing.

(e) In order to qualify for the exemption provided in this subsection (1), a purchase shall be of such nature that it would have qualified for the investment tax credit against federal income tax as was provided by section 38 of the federal "Internal Revenue Code of 1954", as amended.

(f) An exemption may not be claimed under this section for sales tax paid in another state that is credited against Colorado sales tax or use tax or both.

(g) Unless the department of revenue determines pursuant to section 39-26-730 (2) that the declaration can be consolidated with another form or eliminated, to receive an exemption under this subsection (1), a declaration of entitlement shall be filed by the purchaser with the vendor of the machinery or machine tools, or parts thereof, and with the executive director of the department.

(2) Effective July 1, 1979, the storage, use, or consumption of machinery or machine tools, or parts thereof, exempt from sales tax by subsection (1) of this section shall be exempt from taxation under the provisions of part 2 of this article.

Source: L. 2004: Entire part added with relocations, p. 1022, § 2, effective July 1. L. 2007: (1)(a)(III) and (1)(a)(IV) added and (1)(c) amended, p. 1175, §§ 2, 3, effective May 23. L. 2008: (1)(a) amended, p. 1323, § 8, effective May 27. L. 2010: (1)(c)(III) amended, (HB 10-1192), ch. 8, p. 52, § 4, effective March 1. L. 2011: (1)(c)(III) amended, (HB 11-1293), ch. 299, p. 1440, § 5, effective July 1, 2012. L. 2016: (1)(a)(II) and (1)(c)(III) amended and (1)(c)(III.5) added, (SB 16-124), ch. 258, p. 1057, § 1, effective June 8. L. 2018: (1)(c)(III.5) amended and (1)(c)(III.6) added, (HB 18-1350), ch. 388, p. 2319, § 1, effective August 8. L. 2022: (1)(g) amended, (HB 22-1039), ch. 54, p. 254, § 3, effective August 10.

Editor's note: Subsection (1) is similar to former § 39-26-114 (11) and subsection (2) is similar to former § 39-26-203 (1)(y) as they existed prior to 2004.

Cross references: (1) For the legislative declaration contained in the 2007 act enacting subsections (1)(a)(III) and (1)(a)(IV) and amending subsection (1)(c), see section 1 of chapter 281, Session Laws of Colorado 2007.

(2) For the legislative intent contained in the 2008 act amending subsection (1)(a), see section 9 of chapter 302, Session Laws of Colorado 2008.

ANNOTATION

Annotator's note. Since § 39-26-709 is similar to § 39-26-114 and § 39-26-203 as they existed prior to their 2004 repeal and relocation to this part 7, relevant cases construing those provisions have been included in the annotations to this section.

Law reviews. For article, "Colorado's Machinery Exemption", see 25 Colo. Law. 65 (Jan. 1996). For article, "Colorado Machinery Exemption: An Update", see 25 Colo. Law. 113 (Oct. 1996).

By including the phrase "as amended" in subsection (11)(d), the general assembly indicated that that paragraph was intended to track the referenced federal provision as it evolved. Ball Corp. v. Fisher, 51 P.3d 1053 (Colo. App. 2001).

Components of beer manufacturer's load-out facility and the brewing adjunct used by the manufacturer were exempt from use tax pursuant to subsections (1)(y) and (1)(f), respectively. Coors Brewing Co. v. Fagan, 949 P.2d 110 (Colo. App. 1997).

Separators used in oil and gas production are not exempt. Noble Energy v. Colo. Dept. of Rev., 232 P.3d 293 (Colo. App. 2010).

Pipelines and fittings used for natural gas gathering systems move natural gas from one direct production step to another in a continuous flow and therefore satisfy the criteria for direct use in manufacturing as the term is applied for purposes of § 39-30-106. Pioneer Nat. Res. USA v. Dept. of Rev., 2014 COA 101, 356 P.3d 924.

Machinery used in the generation of electricity is not exempt because it does not constitute the manufacturing of tangible personal property. The sales and use tax statutes treat electricity as a service, rather than as tangible personal property. Dept. of Rev. v. Pub. Serv. Co., 2014 CO 59, 330 P.3d 385.