Colorado § 39-26-713 - Tangible personal property.

§ 39-26-713. Tangible personal property.

(1) The following shall be exempt from taxation under the provisions of part 1 of this article 26:

(a) Any right to the continuous possession or use for three years or less of any article of tangible personal property under a lease or contract, if the lessor has paid to the state of Colorado a sales or use tax on such tangible personal property upon its acquisition. The department of revenue may permit a lessor of tangible personal property leased for a period of three years or less to acquire the property free of sales or use tax if the lessor agrees to collect sales tax on all lease payments received on the property.

(b) Repealed.

(c) The sale of tangible personal property for testing, modification, inspection, or similar type of activities in this state if the ultimate use of the property in manufacturing or similar type of activities occurs outside of this state and if the test, modification, or inspection period does not exceed ninety days; and

(d) All sales and purchases of tangible personal property by a manufacturer that uses the property as a component part of goods that it manufactures, including, but not limited to, high technology goods, and that donates such goods to the United States government; the state of Colorado or any department, institution, or political subdivision thereof; or any organization exempt from federal income taxes pursuant to section 501 (c)(3) of the "Internal Revenue Code of 1986", as amended, to the extent that the aggregate value of the goods included in a single donation exceeds one thousand dollars.

(2) The following are exempt from taxation under part 2 of this article 26:

(a) The storage, use, or consumption of any tangible personal property the sale of which is subject to the retail sales tax imposed by part 1 of this article, including transactions that are exempt from taxation under section 39-26-704 (5);

(b) (I) The storage, use, or consumption of any tangible personal property purchased for resale in this state, either in its original form or as an ingredient of a manufactured or compounded product, in the regular course of a business.

(II) For purposes of this subsection (2)(b), any motor vehicle purchased and held for resale in this state by a licensed motor vehicle dealer, as defined in section 44-20-102, who meets the eligibility requirements to receive a full-use dealer plate set forth in section 42-3-116 (6)(a)(I) shall be considered to be in the regular course of business and shall not be subject to taxation under part 2 of this article 26. A motor vehicle shall be considered to be purchased and held for resale if:

(A) The manufacturer's certificate of origin or certificate of title for the motor vehicle is assigned to the motor vehicle dealer;

(B) The motor vehicle is included in a current list of vehicles for retail sale that is prepared by the motor vehicle dealer in the ordinary course of business; and

(C) At any given time, the motor vehicle is available to be purchased and delivered to a retail customer within three business days.

(c) The storage, use, or consumption of tangible personal property brought into this state by a nonresident for his or her own storage, use, or consumption while temporarily within this state;

(d) The storage, use, consumption, or loan of tangible personal property by or to the United States government, the state of Colorado or its institutions or political subdivisions in their governmental capacities only, or any charitable organization in the conduct of its regular charitable functions and activities;

(e) (I) The storage, use, or consumption of tangible personal property by a person engaged in the business of manufacturing or compounding for sale, profit, or use any article, substance, or commodity, which tangible personal property enters into the processing of or becomes an ingredient or component part of the product or service that is manufactured, compounded, or furnished, and the container, label, or the furnished shipping case.

(II) As used in subparagraph (I) of this paragraph (e) with regard to food products, tangible personal property enters into the processing of such products and is therefore exempt from taxation when:

(A) It is intended that such property become an integral or constituent part of a food product that is intended to be sold ultimately at retail for human consumption; or

(B) Such property, whether or not it becomes an integral or constituent part of a food product, is a chemical, solvent, agent, mold, skin casing, or other material; is used for the purpose of producing or inducing a chemical or physical change in a food product or is used for the purpose of placing a food product in a more marketable condition; and is directly utilized and consumed, dissipated, or destroyed, to the extent it is rendered unfit for further use, in the processing of a food product that is intended to be sold ultimately at retail for human consumption.

(f) The storage, use, or consumption of any article of tangible personal property the sale or use of which has already been subjected to a tax equal to or in excess of that imposed by part 2 of this article. A credit shall be granted against the use tax imposed by part 2 of this article with respect to a person's storage, use, or consumption in this state of tangible personal property purchased by the person in another state. The amount of the credit shall be equal to the tax paid by the person to another state by reason of the imposition of a similar tax on the purchase or use of the property. The amount of the credit shall not exceed the tax imposed by part 2 of this article.

(g) The storage, use, or consumption of tangible personal property and household effects acquired outside of this state and brought into it by a nonresident acquiring residency;

(h) The storage, use, or consumption of tangible personal property purchased by a resident of Colorado while outside the state in amounts of one hundred dollars or less; and

(i) Repealed.

(j) The testing, modification, inspection, or similar type activities of tangible personal property acquired for ultimate use outside of this state in manufacturing or similar type of activities if the test, modification, or inspection period does not exceed ninety days.

(3) The sale, storage, use, or consumption of computer software, as defined in section 39-26-102 (15)(c)(II)(B), is exempt from taxation under the provisions of parts 1 and 2 of this article 26 if that sale, storage, use, or consumption of computer software is either governed by a negotiable license agreement or developed for use by a particular user.

(a) As used in this article 26, "negotiated license agreement" means a written agreement or contract that is individually bargained between the licensor and licensee and that is signed in writing by authorized representatives of both the licensor and licensee prior to or contemporaneous with the licensee's access to or use of the software.

(b) As used in this article 26, "individually bargained between the licensor and licensee" specifically excludes a standard, form, or boilerplate agreement that is offered by the licensor on a nonnegotiable or substantially nonnegotiable basis to multiple licensees, regardless of whether the agreement bears a handwritten or electronic signature, or the agreement is printed on, within, or affixed to the software packaging; embedded within the computer software itself; or presented as part of the terms and conditions of any website or application through which the software is acquired, accessed, or used.

(c) As used in this article 26, "signed in writing by authorized representatives of both the licensor and licensee" specifically excludes an acceptance by the licensee on a click-through, browse-wrap, shrink-wrap, embedded signature, implied, account creation, or any other automated basis; except that "signed in writing by authorized representatives of both the licensor and licensee" may include a signature performed through an electronic signature method authorized pursuant to section 39-21-120 and department rules and specifically includes electronic signature methods such as docusign or a similar authenticated electronic signature.

(d) The executive director of the department of revenue may adopt rules necessary to implement this section.

Source: L. 2004: Entire part added with relocations, p. 1025, § 2, effective July 1. L. 2006: IP(2)(b)(II) amended, p. 1508, § 59, effective June 1. L. 2017: IP(2) and IP(2)(b)(II) amended, (SB 17-240), ch. 395, p. 2065, § 48, effective July 1. L. 2018: (2)(d) amended, (HB 18-1218), ch. 380, p. 2296, § 2, effective July 1; IP(2)(b)(II) amended, (SB 18-030), ch. 7, p. 140, § 14, effective October 1. L. 2022: IP(1) and (2)(h) amended HB 22-1025), ch. 145, p. 946, § 8, effective January 1, 2023; (1)(b)(II) and (2)(i)(II) added by revision, (HB 22-1025), ch. 145, pp. 946, 948, §§ 8, 13. L. 2026: (3) added, (HB 26-1223), ch. 379, p. 2356, § 6, effective June 4.

Editor's note: (1) The provisions of this section are similar to several former provisions of §§ 39-26-114 and 39-26-203 as they existed prior to 2004. For a detailed comparison, see the comparative tables located in the back of the index.

(2) House Bill 04-1241 amended § 39-26-203 (1)(b), effective April 26, 2004, but that amendment did not take effect in that section since the entire section was repealed by Senate Bill 04-087, effective July 1, 2004. The amendment to § 39-26-203 (1)(b) by House Bill 04-1241 was harmonized with Senate Bill 04-087 and relocated to subsection (2)(b).

(3) Subsections (1)(b)(II) and (2)(i)(II) provided for the repeal of subsections (1)(b) and (2)(i), respectively, effective January 1, 2023. (See L. 2022, p. 946.)

Cross references: For the legislative declaration contained in the 2004 act amending subsection (2)(b), as said amendment was relocated from § 39-26-203 (1)(b) as amended in House Bill 04-1241, see section 1 of chapter 203, Session Laws of Colorado 2004.

ANNOTATION

Annotator's note. Since § 39-26-713 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.

Denial of trade-in allowance on out-of-state purchases unconstitutional. It is 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 is allowed when the vehicle is purchased in Colorado. Such unequal treatment is discriminatory and constitutes an impermissible burden on interstate commerce. Matthews v. State Dept. of Rev., 193 Colo. 44, 562 P.2d 415 (1977).

Use taxes equalize burden between in-state and out-of-state purchasers. Use taxes are enacted primarily to equalize the tax burden as between those who purchase within and without the state. Matthews v. State Dept. of Rev., 193 Colo. 44, 562 P.2d 415 (1977).

Use tax no greater than necessary to compensate for earlier avoided sales tax. Given the supplementary nature and equalizing function of the use tax, the burden on the taxpayer should be no greater than necessary to compensate for the sales tax originally avoided on purchases of materials for manufacturing and resale. A levy upon the "full finished goods cost" or "capitalized cost" of goods withdrawn from a company's inventory inevitably would have the effect of taxing the company's labor and overhead. In effect, it would amount to a value added tax. Int'l Bus. Machs. Corp. v. Charnes, 198 Colo. 374, 601 P.2d 622 (1979).

In considering the meaning of the statutory use tax exemption, the definitions of wholesale and retail sale established by the general assembly differ from the ordinarily accepted general conception of those terms. Bedford v. Colo. Fuel and Iron Corp., 102 Colo. 538, 81 P.2d 752 (1938); Hirschfeld Press v. Denver, 806 P.2d 917 (Colo. 1991).

The primary purpose of a purchase, as determined by objective criteria, determines whether the purchase is for resale. Hirschfeld Press v. Denver, 806 P.2d 917 (Colo. 1991).

The determination of whether a transaction constitutes a purchase for resale turns on whether the item purchased is acquired primarily for resale in an unaltered condition and basically unused by the purchaser. Hirschfeld Press v. Denver, 806 P.2d 917 (Colo. 1991).

Only price of parts, not labor, taxable. Of the contract prices of elevators installed in a building, that part representing the amount expended for labor is exempt from the tax, the balance representing the cost of materials being taxable. Fifteenth St. Inv. Co. v. People, 102 Colo. 571, 81 P.2d 764 (1938).

Section prevents use tax on property for which sales tax paid. This section is intended to prevent the imposition of a "use" tax on tangible personal property in those instances where the consumer has actually paid to a licensed "vendor" the statutory sales tax due on the sale. J. A. Tobin Constr. Co. v. Weed, 158 Colo. 430, 407 P.2d 350 (1965).

Phrase "in the regular course of a business" in subsection (1)(b) involves a requirement of commercial continuity of consistency. Rose v. Exec. Dir. of Dept. of Rev., 42 Colo. App. 319, 593 P.2d 982 (1979).

The question of whether a purchase of an item of personal property is a purchase for resale as contemplated by subsection (1)(b) requires a determination of whether the item is purchased primarily for resale in an unaltered condition and basically unused by the purchaser. Reg'l Transp. Dist. v. Martin Marietta Corp, 805 P.2d 1102 (Colo. 1991).

The use to which the purchaser puts the property will often define the true nature of a particular transaction. The test of whether a purchase of an item of tangible property is a purchase for resale does not emphasize the subjective intent of the purchaser, but rather focuses on the conduct of the purchaser. Reg'l Transp. Dist. v. Martin Marietta Corp, 805 P.2d 1102 (Colo. 1991).

Exemption for tangible personal property purchased for resale in the regular course of business was construed in Martin Marietta v. Reg'l Transp. Dist., 772 P.2d 668 (Colo. App. 1989).

Only property becoming constituent part of finished product entitled to exemption. In order to be exempt under the processing clause of the sales and use tax provisions, tangible personal property purchased by a manufacturer must become a constituent part of the finished product, wholly or partially, by either chemical or mechanical means. CF & I Steel Corp. v. Charnes, 637 P.2d 324 (Colo. 1981).

City should have imposed sales tax on golf cart rentals because city acted in a proprietary capacity in renting golf carts. Since sales tax had not been collected, requiring city to pay use tax in lieu of sales tax was appropriate. Colo. Dept. of Rev. v. City of Aurora, 32 P.3d 590 (Colo. App. 2001).

City liable for use tax on golf cart rentals. City acted in a proprietary capacity in renting golf carts and was therefore liable to the state under § 39-26-105 for sales tax that it failed to collect from customers renting golf carts. Since sales tax had not been collected, requiring city to pay use tax in lieu of sales tax was appropriate. Colo. Dept. of Rev. v. City of Aurora, 32 P.3d 590 (Colo. App. 2001).

Purchase of communications apparatus by telephone company. The purchase by a telephone company of instruments, apparatus, cable, wire, etc., does not "enter into the processing of" the service rendered by the company, and therefore is not exempt from the sales and use tax. W. Elec. Co. v. Weed, 185 Colo. 340, 524 P.2d 1369 (1974).

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).