CO GIL 09-006 Sales & Use Tax 2009-01-15

Is a separately stated fee to read the meter on a customer's propane tank subject to Colorado sales tax?

Short answer: It depends on the customer, and the Department made no binding determination on separability. A fee to read the meter on a propane tank is NOT taxable when the gas sale itself is exempt—Colorado exempts natural gas and propane sold for residential use—so no tax is due on the fee for residential customers. For COMMERCIAL gas service (which is taxable), the fee is taxable unless it's genuinely 'separable' from the gas sale; the Department warned that a seller generally can't avoid tax on its overhead (like meter reading) just by stating it as a separate fee, and it declined to decide separability without more facts. (This is a General Information Letter: general guidance only, not binding, and the Department made no specific determination.)

Disclaimer: This is a Colorado Department of Revenue General Information Letter (GIL). A GIL is a general discussion of the tax law that represents the good-faith opinion of Department personnel; it is NOT binding on the Department, makes NO specific determination on the issues raised, and CANNOT be relied upon as a ruling by any taxpayer. It does not address sales or use taxes administered by self-collected home-rule cities and counties. This summary is informational only and is not legal or tax advice. Consult a licensed Colorado tax professional about your situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

A company that sells propane to residential and commercial customers — some installations have a meter on the tank — is considering charging a separately stated fee to send someone to the customer's premises to read the meter. It asked whether that fee is subject to sales tax. The Department gave general guidance and declined to make a specific determination, but the framework yields a clear split by customer type.

The fee follows the taxability of the gas. Colorado taxes gas service for commercial consumption (§ 39-26-104(1)(d.1)) but exempts the sale, use, storage, or consumption of gas — including propane — sold for residential purposes (§ 39-26-715(1)(a)(II), (2)(c)). The Department's key point: if the sale of gas is exempt (residential), no tax is due on the meter-reading fee either. So for residential propane customers, the meter-reading fee isn't taxed.

For taxable (commercial) gas, it's a separability question. Tax is calculated on the purchase price the consumer pays (§ 39-26-104(1)(a)). A service a retailer provides in connection with a taxable sale is excluded from tax only if it's "separable" from the sale (A.D. Stores). The Department said separability isn't always easy to judge, and it generally asks whether the consumer has a realistic alternative to forgo the service or get it from someone else. It gave a pointed example: a utility's meter-reading cost is normally recovered in the price of the gas, and the utility generally can't avoid tax on that cost (or other overhead) by separately charging a fee for it. The strong implication for commercial customers is that a meter-reading fee that's really just recovered overhead would be taxable — but the Department said it couldn't determine separability without more facts and invited a private letter ruling.

What this means for you

Propane and natural-gas sellers

Tie the fee to the gas's taxability. For residential customers, gas (including propane) is exempt, so an associated meter-reading fee isn't taxed. For commercial customers, treat a meter-reading or similar service charge as likely taxable if it's really recovered overhead — separately labeling it usually won't make it tax-free unless the customer genuinely could decline it or buy it elsewhere.

Other utilities and service providers billing add-on fees

You generally can't carve your overhead out of the tax base by renaming part of the price as a separate "service fee." The test is separability — a realistic option for the customer to forgo or independently source the service — not just a separate line on the invoice.

Accountants and tax professionals

Two moving parts: (1) is the underlying sale taxable (commercial gas) or exempt (residential gas)? and (2) for taxable sales, is the fee separable? For a binding answer on a specific commercial fee structure, get a PLR; the Department expressly withheld a determination here.

Common questions

Q: Do we charge tax on a meter-reading fee for a residential propane customer?
A: No. Residential gas/propane is exempt, and the Department says the meter-reading fee isn't taxed when the gas sale is exempt.

Q: What about a commercial customer?
A: Commercial gas service is taxable, so the fee is taxable unless it's genuinely separable from the gas sale. A fee that just recovers your overhead generally stays in the tax base even if separately stated.

Q: Can I make the fee tax-free just by listing it separately?
A: No. Separate statement alone isn't enough — the service must be separable (the customer could realistically forgo it or get it elsewhere).

Citations and references

Statutes and authorities:
- § 39-26-104(1)(d.1), C.R.S. (gas service for commercial consumption taxed); § 39-26-715(1)(a)(II) & (2)(c), C.R.S. (residential gas/propane exemption)
- § 39-26-104(1)(a), C.R.S. (tax on the purchase price)
- A.D. Stores v. Department of Revenue, 19 P.3d 680 (Colo. 2001) (separability)

Related rulings

[[gil-09-003-taxability-of-fcc-license-and-coordination-fee]] — separability of an ancillary fee; separate statement not enough
[[plr-10-002-private-letter-ruling]] — separately stated charge excluded only if also separable
[[plr-09-004-private-letter-ruling]] — optional, separable services excluded from a taxable transaction

Source

Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-09-006.pdf

Original ruling text

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

GIL-2009-006
January 15, 2009
XXXXXXXXXXXXXX
Attn: XXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
Re: Inspection fee
Dear XXXXXXXX,
This letter is in response to your request for guidance on the taxability of meter reading fee.
The Department issues two types of written guidance: general information letters and private
letter rulings. A general information letter provides a general overview of the applicable tax law
and is not binding on the department. A private letter ruling is a determination of the
applicability of tax to a specific set of circumstances and is binding in the department. A party
requesting a private letter ruling must provide certain information and remit a fee. For more
information about general information letters and private letter rulings, please refer to the
Department’s regulation 24-35-103.5, C.R.S., which is available on our web site at:
www.colorado.gov/revenue/tax.
We will initially treat your request as one for a general information letter. You may resubmit this
request for a private letter ruling.
Issue
Is a fee for reading meters located on propane tanks subject to sales tax?
Background
You provide the following information. Your company sells propane fuel to both residential and
commercial customers. Some of the installations have a meter on the tank. The company is
considering charging a fee to go to their premises and read the meter. The fee will be
separately stated on the invoice.
Discussion
Colorado levies sales and use tax on gas service for commercial consumption. 39-26104(1)(d.1), C.R.S. Colorado exempts from such taxes the sale, use, storage or consumption of
natural gas, including propane, used for residential purposes.1 Tax is calculated on the
1 Colorado exempts “all sales and purchase of …gas …, but not for resale, to occupants of residences, whether owned,
leased, or rented by said occupants, for the purpose of operating residential fixtures and appliances that provide light,
hear, and power for such residences….” 39-26-715(1)(a)(II) and (2)(c), C.R.S.

purchase price paid by the consumer. §39-26-104(1)(a), C.R.S. In some instances, a retailer
will provide services (which are not otherwise taxable) in connection with the sale of taxable
goods. Services that are “separable” from the sale of the taxable product are not included in the
calculation of sales tax. See, AD Stores v Department of Revenue, 19 P3d 680 (Colo. 2001). It
is not always easy to determine whether a service is “separable,” but the department will
generally ask whether the consumer has a realistic alternative to forgo the service or to obtain
the service from another party. For example, the cost to a utility for reading gas meters as part
of its taxable natural gas service is typically recovered in the price charged for natural gas
service. The utility generally cannot avoid tax on this cost or other overhead costs by separately
charging fees for such costs. In any event, tax is not due on the meter reading fee if the sale of
gas is exempt from tax (as in the case of sales for residential purposes).
The department generally does not provide in general information letters a determination
regarding specific factual scenarios. Moreover, there is insufficient information to determine
whether the fee charged by the company is separable. As noted above, you may request a
private letter ruling in which we will provide a binding determination regarding the specific
circumstances of your company.
Miscellaneous
Pursuant to state law and department regulation 24-35-103.5, the Department will make public a
redacted version of this letter. Your letter requesting this general information letter is not made
public. I enclose a proposed redacted version of this letter. Please contact me within 60 days
from the date of this letter if you have any questions, comments, or objection concerning the
redacted letter.
We hope this is helpful. As noted earlier, you may request a private letter ruling which will
provide a determination regarding your specific circumstances.

Sincerely,

Office of Tax Policy
Colorado Department of Revenue