A condo developer paid sales tax when it bought furniture, then sells the furnishings to fractional-interest buyers with the units—does it owe sales tax again on that sale, and is that double taxation?

Plain-English summary

A condominium developer built 65 units in a Colorado resort town and sells fractional interests in them. It bought furniture and furnishings to furnish the units, paid sales tax on those purchases, then sells the furnishings to the fractional-interest buyers as part of the real-property purchase — without a separate bill of sale and without collecting tax from the buyers. Units can be rented nightly. The developer (already told by the Department it owes tax) asked for a "determination" that it doesn't.

The Department's points:

• It's not a "determination." The Department only issues formal determinations in a protest of an assessment or a refund denial (§ 39-21-103/104); this GIL isn't one.
• The sale of furnishings is a taxable retail sale. Selling tangible personal property is generally taxable (§ 39-26-104). The developer is acting as a retailer of the furnishings, so it should have bought them tax-free as a wholesale (resale) purchase (with a retailer's license) and collected tax on the resale. If it erroneously paid sales tax to suppliers, it can file a refund claim (DR 0137).
• The "no intrinsic value / no markup" argument fails. Unlike income tax (on gain), sales tax is computed on the purchase price — it's irrelevant whether the retailer marked the goods up or the value didn't increase (§ 39-26-104(1)(a), § 39-26-102(7)(a)). So Reg (39)26-102.15 doesn't help.
• The hotel-furniture analogy (Revenue Determination No. 81) doesn't fit. A hotel provides a service and is the consumer of its furnishings; but an owner who sells furnishings together with the real property is a retailer of TPP, not a service provider (cf. Telluride Resort & Spa, 40 P.3d 1260).
• Renting before selling triggers use tax. A taxpayer can buy tax-free for resale if it intends to resell; but if it uses the item first (e.g., rents the furnished unit), it owes use tax on its purchase price. Short-term lodging (under 30 days) is itself taxable (§ 39-26-104(f), § 39-26-102(11), § 39-26-704(3), as cited in the letter); county lodging and local marketing-district taxes may also apply.
• No double taxation. The taxable use (renting the furnished unit) and the later sale of the furnishings to fractional owners are separate taxable transactions — not impermissible double taxation (American Multi-Cinema, 910 P.2d 64; A.B. Hirschfeld Press, 806 P.2d 917).

What this means for you

Developers and anyone reselling tangible personal property bundled with real estate

If you furnish a property and then sell the furnishings to your buyers, you're a retailer of those furnishings — even when they go through as part of the real-estate deal and even without a separate bill of sale. The right mechanics: buy them tax-free for resale (get a retailer's license, give a resale certificate) and collect tax from your buyers. Paying tax up front and not collecting on resale is the wrong way around — though you can claim a refund of tax you shouldn't have paid.

Markup is irrelevant — sales tax is on the price

Don't rely on "we didn't mark it up" or "the furniture didn't gain value." Sales tax is computed on the purchase price, not on profit. The income-tax intuition (tax on gain) doesn't carry over.

If you rent the units, expect use tax — and it's not double taxation

Renting the furnished unit (taxable short-term lodging) is a taxable use of the furnishings, so you owe use tax on them. When you later sell the furnishings, that's a separate taxable sale. Colorado courts have upheld taxing both — it's two distinct transactions, not double taxation.

Watch lodging and local taxes

Short-term rentals (under 30 days) are taxable, and county lodging and local marketing-district taxes may apply on top. Home-rule cities run their own taxes (DRP 1002).

Common questions

Q: I paid sales tax on furniture, then sold it to my buyers — do I owe tax again?
A: The sale to your buyers is a taxable retail sale. You should have bought the furniture tax-free for resale and collected tax on the sale. You can claim a refund of the tax you wrongly paid your suppliers.

Q: I didn't mark up the furnishings — isn't that exempt?
A: No. Sales tax is on the purchase price, not on profit. Whether you marked it up or it gained value is irrelevant.

Q: Isn't taxing both my rental use and my later sale double taxation?
A: No. Colorado treats the taxable use (renting the furnished unit) and the later sale as separate transactions. Courts have upheld this as not being impermissible double taxation.

Q: When do I owe use tax instead of buying for resale?
A: If you buy for resale but then use the item first — for example, by renting the furnished unit before selling — you owe use tax on the purchase price.

Q: Can I rely on this letter?
A: No. It's a General Information Letter — general guidance, not binding on the Department, and it's not a formal determination (which only comes through a protest or refund-denial process).

Citations and references

Statutes, regulations, and cases:
- § 39-26-104, C.R.S. and § 39-26-102(9) — sales tax on retail sales; wholesale (resale) sales are not retail
- § 39-26-104(1)(a) and § 39-26-102(7)(a), C.R.S. — tax computed on purchase price; markup/profit irrelevant
- § 39-26-104(f), § 39-26-102(11), § 39-26-704(3), C.R.S. (as cited in the letter) — rental of accommodations under 30 days is taxable
- Department Regulation (39)26-102.15; § 39-21-103/104, C.R.S. (formal determinations); FYI Sales 1 (documenting wholesale purchases); Forms DR 0137 (refund) and DR 0100 (license)
- American Multi-Cinema v. City of Westminster, 910 P.2d 64 (Colo. 1995); A.B. Hirschfeld Press v. City & County of Denver, 806 P.2d 917 (Colo. 1991) — separate taxable transactions are not double taxation; cf. Telluride Resort & Spa v. Dept. of Revenue, 40 P.3d 1260 (Colo. 2002)

Related Colorado resale/wholesale letters:
- [[gil-08-003-wholesale-sales]] — resale certificates and due diligence
- [[gil-08-008-taxability-of-video-format-conversion]] — buy for resale, then make a taxable retail sale

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-08-033.pdf

Original ruling text

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

GIL-2008-033
December 29, 2008
XXXXXXXXXXXXXX
Attn: XXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
Re: XXXXXXXXXXXXXXXXX
Dear XXXXXXXX,
Your firm represents XXXXXXXXXXXX (“Taxpayer”) which requests a determination
regarding the applicability of sales tax to the sale of furniture and other tangible
personal property. The Department issues both general information letters and private
letter rulings. General information letters provide general guidance on tax issues and
are not binding on the department. Private letter rulings typically address the
applicability of tax to a specific set of facts, are binding on the department, and require
payment of a fee. For more information about letters and rulings, please see
Department Regulation 24-35-103.5, which you can view on our web site at:
www.revenue.state.co.us and go to Taxation>Resources/Publication>Regulations
Your request does not conform to the requirements for private letter ruling request. I will
initially treat your request as one for a general information letter. However, please let
me know if you would like to resubmit this as a private letter ruling request.
Issue
Is the sale of furniture and other tangible personal property purchased by a
condominium developer subject to sales tax even though the developer paid sales tax
when it purchased the furniture?
Background
You represent on behalf of your client the following facts. Taxpayer is a developer and
builder engaged in the construction and sale of condominiums. It does not hold a

retailer’s sales tax license issued by the Department. Taxpayer has constructed 65
condominium units in a resort town located in Colorado. Taxpayer states that it has
been authorized by the Colorado Real Estate Commission to sell up to XXX fractional
interests in these condominiums. Any of the condominium units can be placed into a
resort trading network through Resort Condominiums International, Inc. The local city
ordinance allows these units to be rented nightly. Taxpayer purchased furniture and
other tangible personal property (furnishings”) to furnish the condominiums prior to sale
to fractional interest owners. Taxpayer sells the furnishings to the interest owners as
part of the purchase of the real property. Taxpayer pays sales tax when it purchases
the furnishing, but does not collect sales tax from fractional interest owners when it sells
the fractional interests. Taxpayer does not issue a separate bill of sale for the
furnishings.
Although not particularly clear in your letter, we assume that either or both the fractional
interest owners and Taxpayer rent condominium units in which they have an interest to
third-parties.
Discussion
Taxpayer has been previously advised by the Department that it owes sales tax relating
to the furnishings. Taxpayer believes it does not owe the tax and asks for a
“determination” to that effect. The department does not issue determinations except in
resolution of a protest of an assessment or of a rejection of a refund claim. See,
generally, §39-21-103, et seq, C.R.S. Taxpayer’s letter is not a protest of either an
assessment or of a rejection of a refund claim. This letter does not constitute a
determination within the meaning of §39-21-103 or 104, C.R.S.
Taxpayer posits three arguments. It asserts that Department Regulation (39)26-102.15,
which exempts from tax property that has no intrinsic value, applies because Taxpayer
has not charged a mark up for the furnishings and the furnishings have not increased in
value from the time it purchased the furnishing to the time of sale to fractional interest
owners. Taxpayer further argues that Colorado Revenue Determination No. 81, in
which the Department determined that a hotel’s purchase of furniture was not an
exempt wholesale purchase because the hotel was the providing a service and that the
renting of rooms to guest was not a rental of the furnishing, applies to its circumstances.
Finally, Taxpayer argues that applying sales tax to the sale to fractional interest owners
is double taxation and, therefore, prohibited.
The sale of tangible personal property in Colorado is generally subject to sales tax.
See, §39-26-104, C.R.S. Purchases made by a retailer who, at the time of the
purchase, intends to resell the goods are exempt wholesale purchases. See, §39-26104 (sales tax applies to sales at “retail”); §39-26-102(9) (wholesale sales are not retail
sales). See, also, Department FYI Sales 1 for a discussion of how to document an
exempt wholesale purchase. If Taxpayer believes that it erroneously paid sales tax to
its suppliers, it may submit a claim for refund. See, Department Form DR 0137. In
general, an entity that purchases goods for resale must obtain a retailer’s sales tax
2

license from the Department. See, Department Form DR 100 (Business Registration
Form).
Taxpayer’s reliance on regulation (39)26-102.15 is misplaced. Unlike income tax which
is computed on the gain of a sale, sales tax is computed on the purchase price and it is
irrelevant whether the retailer has marked up the goods or the value or price of the
goods has not increased after it was purchased by the retailer. §39-26-104(1)(a) (sales
tax on the purchase price paid) and §39-26-102(7)(a) (purchase price is the price to the
consumer); compare, e.g. Texas Comptroller's Decision No. 16,448, 11/12/1985 (sales
tax due regardless of whether retailer makes a profit on sale).
Colorado Revenue Determination No. 81 is also clearly inapposite in cases where the
units are not rented. A hotel is providing a service and, as such, is deemed the
consumer of the furnishings used to provide that service. In contrast, an owner of real
property who sells furnishings together with the real property is not providing a service,
but, rather, is a retailer of tangible personal property. Compare, Telluride Resort and
Spa, L.P. v. Colorado Department of Revenue, 40 P3d 1260 (Colo.2002).
A taxpayer may make a tax exempt wholesale purchase of tangible personal property
from suppliers if the taxpayer, at the time of such purchase, intends to rent the personal
property to third parties. However, if the taxpayer, prior to the resale, uses the item,
then the taxpayer is liable for use tax, which is computed on the purchase price paid to
its supplier. For example, a retailer who makes a tax exempt wholesale purchase of
furnishings with the intent to resell the furnishings, but later, prior to such sale, rents the
unit with the furnishings, taxpayer has used the furnishings and is liable for use tax
calculated on the purchase price paid to the supplier. Please also note that the rental of
living accommodations for less than thirty consecutive days is subject to sales tax. See,
§39-26-104(f), 102(11), and 704(3) C.R.S. County lodging tax and local marketing
district taxes, if any, apply to the rental of accommodations.
If, after the taxpayer rents the condominium unit, taxpayer then sells the unit to a
fractional interest owner, the sale of the fractional interest in the furnishings is subject to
sales tax, regardless of whether taxpayer has previously paid sales or use tax on such
furnishings. Taxpayer’s taxable use of the furnishing to provide living accommodations
(and furnishings) for rent is a separate taxable transaction from the subsequent sale of
the furnishing to fractional owners and does not constitute impermissible double
taxation. See, e.g., American Multi-Cinema, Inc. v. City of Westminster and Susan S.
Stubbs, as Finance Director for the City of Westminster., 910 P2d 64 (Colo.1995); A.B.
Hirschfeld Press, Inc. v. The City and County of Denver, et al, 806 P2d 917 (Colo.
1991).

3

Miscellaneous Matters
Please note that the department does not collect sales and use taxes for “home-rule”
cities and counties. You can find a list of these jurisdictions by visiting our web site at:
www.revenue.state.co.us (go to Taxation > Forms > Businesses > Sales and Use >
DRP 1002)
Contact those governments for information about their taxes.
This general information letter represents the advice of experienced members of the
Department’s staff. However, it is not binding on the department. Enclosed is a
redacted version of this ruling. Pursuant to statute and regulation, this redacted version
of the ruling will be made public within 60 days of the date of this letter. Please let me
know in writing within that 60 day period whether you have any suggestions or concerns
about this redacted version of the ruling.
Sincerely,
Office of Tax Policy
Colorado Department of Revenue

4