Does a for-profit daycare pay sales tax on the paper plates, plasticware, and similar supplies it uses to serve food to children?

Plain-English summary

A for-profit operator of licensed daycare/education centers (not a 501(c)(3)) charges weekly tuition and provides food to children as an incidental part of the service. It asked whether the paper and plastic supplies used to serve that food are subject to sales or use tax.

The Department's answer turns on the daycare being a service provider: under the Service Enterprises rule (Special Regulation 40), a service enterprise is the consumer of the tangible personal property it uses in its business — even when that property is transferred to or used by its customers. The example: the daycare is the consumer of the coloring paper, crayons, and glue it uses to provide its educational services, even though the children use and keep them. The same goes for the paper plates and plasticware used to serve food.

So:
- The daycare does not charge parents sales tax when those supplies are handed to or used by the children, and
- The daycare must pay sales tax when it buys the supplies from its suppliers — because sales to private and for-profit schools are not exempt (§ 39-26-704(4); Regulation (39)26-704.4).

The Department also noted, in passing, that the food itself served in schools and similar institutional settings is generally exempt, because such institutions aren't commercial enterprises regularly selling food to the public (Colorado College v. Heckers) — but that wasn't the question asked.

What this means for you

Daycares, preschools, and similar service enterprises

You're the end consumer of the supplies you use to deliver your service — plates, cups, plasticware, art supplies — so you pay sales tax to your vendors when you buy them, and you don't (and shouldn't) collect tax from parents on those items. Don't give your supplier a resale certificate for these; they're not for resale, they're consumed in your service.

For-profit vs. nonprofit matters

Being a for-profit (non-501(c)(3)) school or daycare means your purchases are not exempt. A qualifying nonprofit/charitable or governmental school may have different treatment; the not-exempt result here flows from the for-profit status (§ 39-26-704(4)).

The food itself

Separately from the supplies, food served in institutional school-type settings is generally exempt under the Colorado College v. Heckers line — but confirm your specifics, since the Department didn't rule on the food in this letter.

Common questions

Q: Does a for-profit daycare charge parents sales tax on plates and plasticware?
A: No. The daycare is the consumer of those supplies, so it doesn't collect tax from parents on them.

Q: So are they tax-free?
A: No — the tax is paid at a different point. The daycare must pay sales tax when it buys the supplies from its suppliers, because sales to for-profit schools aren't exempt.

Q: What about crayons, glue, and other materials the kids use?
A: Same treatment. As a service enterprise, the daycare is the consumer of those items too, even though the children use and keep them.

Q: Is the food taxable?
A: The letter didn't decide that, but noted food served in school-type institutional settings is generally exempt (Colorado College v. Heckers).

Q: Can I rely on this letter?
A: No. It's a General Information Letter — general guidance only, not binding on the Department.

Citations and references

Statutes, rules, and cases:
- § 39-26-104(1)(a); § 39-26-204, C.R.S. — imposition of sales/use tax on tangible personal property
- § 39-26-704(4), C.R.S. — sales to private/for-profit schools are not exempt
- Department Regulation (39)26-704.4
- Department Special Regulation 40 (Service Enterprises) — a service enterprise is the consumer of TPP it uses
- Colorado College v. Heckers, 517 P.2d 419 (Colo. 1973) — food in institutional school settings generally exempt

Source

• Landing page: Colorado Sales & Use Tax Letter Rulings
• Original PDF: GIL-08-007.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

GIL-2008-7

XXXXXXXXXXXXXX
Attn: XXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
February 28, 2008

Re: taxability of plates, utensils, etc. related to food service
Dear XXXXXXXXXX,
This letter is in response to your letter to the Colorado Department of Revenue, dated December 31,
2007, re: the taxability of food service supplies.
Issues
You ask for guidance regarding whether the following item is subject to sales or use tax.
Paper and plastic supplies used in providing food at a licensed daycare facility.
Background
You provide the following information. You operate a number of licensed daycare centers with a
focus on education. You are a for-profit enterprise and do not hold a 501(C)(3) certificate from the
Internal Revenue Service. You charge a weekly tuition for services. Food is provided to children as
an incidental element of the service. Although you characterize the food service as optional, the price
does not vary depending on whether the customer (parent) elects to supply their children food or
have you provide the food.
Discussion
Colorado imposes sales and use tax on the sale, use, storage, or consumption of tangible personal
property. §39-26-104(1)(a) and 204, C.R.S. Although you have not asked for a determination
whether food you serve is taxable, I note that food sold in public and private schools and in other
similar institutional settings is generally exempt from tax because such institutions are generally not
considered to be commercial enterprises which regularly sell food to the public. See, e.g., Colorado
College v Heckers, 517 P2d 419 (Colo. 1973).
Your company is considered is a service provider. As such, the company is considered the consumer
of tangible personal property used in connection with its enterprise, even if the property is transferred
to, or used by, its customers. See, Department Special Regulation 40 (Service Enterprises). For

example, the company is considered the consumer of coloring paper, crayons, and glue, which it
uses to provide its educational services, even though these supplies are often transferred to, and
used by, the children. This means that the company should not charge customers sales tax when
such items are transferred to, or used by, the children. However, and because the company is
considered the consumer, the company must pay sales tax when it purchases these supplies from
suppliers. Sales to private and for-profit schools are not exempt. See, §39-26-704(4), C.R.S. and
Department Regulation (39-)26-704.4. Therefore, the company must pay sales tax on paper and
plasticware used in the conduct of its business, including serving food to children.
The department has a number of publications and other resources available to you regarding sales
tax, electronic filing options, and other tax related issues. Visit us at: www.revenue.state.co.us and
go to Taxation.
Finally, the Department makes a good faith effort to provide accurate and complete answers to
questions posed to it by taxpayers. However, the information and answers provided here are not
binding on the Colorado Department of Revenue, nor do they replace, alter, or supersede Colorado
law and regulations. The Executive Director, who by statute is the only person having authority to
bind the Department, has not formally reviewed and/or approved this response.
Respectfully,

Office of Tax Policy
Colorado Department of Revenue