Does a full-service truck wash owe Colorado sales tax on the wash, and use tax on the soaps, wax, water, electricity, gas, and equipment it uses?

Plain-English summary

A company operating a full-service truck wash asked about tax on the wash and on soaps, water, electricity, natural gas, salt, wax, equipment, supplies, and freight. The Department said it was giving a general discussion and expressly made no specific determination.

The letter explains that the true object of a mixed transaction can determine whether the customer bought a service or tangible personal property. If the company's employees run the equipment, the facts suggest the true object is the truck-washing service rather than equipment rental. On that assumption, the company would owe use tax on equipment and products it uses to provide the service. The Department says it does not reach a conclusion on these issues.

The letter separately discusses wax or protective coatings sold in the customer's own packaging, energy used in industrial processes, and freight charges. Each depends on the facts described in the letter and the applicable rules.

What this means for you

Full-service washes

The GIL suggests a non-taxable service treatment when the operator's employees use the equipment, but it does not decide a particular wash's treatment. A different arrangement, including customer operation of equipment or a separate sale of products, may change the analysis.

Inputs and energy

The letter discusses use tax on equipment and products used to provide a service and quotes the industrial-energy exemption. It does not decide whether this truck wash's electricity or gas qualifies as an industrial use.

Common questions

Q: Does the GIL decide that every full-service truck wash is nontaxable?
A: No. It says that if the company's employees run the equipment, the facts suggest the true object is the washing service, but it makes no specific determination.

Q: What does the letter say about supplies used by the operator?
A: It says a retailer providing a nontaxable service is liable for use tax on equipment and products used to provide that service. The GIL does not decide the particular company's liability.

Q: Does the industrial-energy exemption automatically apply to the wash's electricity and gas?
A: No automatic conclusion is made. The letter quotes § 39-26-102(21)(a), which exempts certain industrial uses, but says it does not make a specific determination.

Citations and references

Statutes and references:

• § 39-26-104, C.R.S. (sales tax); § 39-26-202, C.R.S. (use tax)
• § 39-26-102(21)(a), C.R.S. (industrial-use energy/gas exempt as wholesale sales)
• 1 CCR 201-5, Reg. 39-26-102.23 (truck-with-operator true-object guidance)
• FYI Sales 29 / Special Regulation, Transportation Charges (freight taxability)

Related rulings

• [[gil-12-011-reimbursable-expenses]] — true-object / separability for mixed goods-and-services charges
• [[gil-12-007-transportation-charges]] — when freight/delivery is excluded from tax
• [[gil-12-006-application-service-providers]] — service provider owes use tax on inputs

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-12-014.pdf

Original ruling text

r a) COLORADO
Ss YS Department of Revenue
™ Taxation Division

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087

[email protected]

GIL-12-014
December 31, 2012

XXXXXXXXXXXXXXXX
ATTN:XXXXXXXXXXX
XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX

Re: Full-Service Truck Wash and Supplies
Dear XXXXXXXXXXX,

You submitted on behalf of XXXXXXXXXXXXXXXXXXXX ("Company") a request for guidance to determine the applicability of Colorado sales and use tax on truck washes and products.

The Colorado Department of Revenue ("Department") issues general information letters and private letter rulings. A general information letter provides a general overview of the relevant tax issues and is not binding on the Department. A private letter ruling provides a specific determination for a specific set of facts, is binding on the Department but not on the taxpayer, and requires payment of a fee. For more information about general information letters and private letter rulings, please see Department regulation 24-35-103.5 at www.colorado.gov/revenue/tax > Tax Library > Rulings.

The Department initially treats your request as one of a general information letter. If you would like the Department to issue a private letter ruling on the issues you raise, you can resubmit a request and fee in compliance with regulation 24-35-103.5. It is important to remember that general information letters, such as this one, are general discussions of tax law and are not a determination of the tax consequence of any particular action or inaction.

Issue

1. Isa full-service truck wash subject to Colorado sales and use tax?
2. Is Company subject to use tax on purchases of the following items used in the wash
   process?
   a) Soaps and cleaning agents
   b) Water, electricity and natural gas
   c) Salt for water softeners
   d) Wax and other protective products
   )

e) Equipment and other supplies

f) Freight for delivery of any of the above
Background

Company operates a full-service truck wash in Colorado. Company does not sell any personal property, other than wax and other protective coatings that may be applied during the wash process.

Discussion

The Department does not have a regulation or publication that specifically addresses your inquiry. The following is a general discussion of the tax issues surrounding your request.

Colorado imposes sales and use tax on the sale of tangible personal property. §39-26-104 and 202, C.R.S. In general, Colorado does not levy sales tax on services, except in certain circumstances.

If a retailer provides both taxable tangible personal property and non-taxable services, the question arises whether some, all, or none of the price is taxable. This will generally turn on whether the "true object" of the transaction is the sale of a service or the sale or rental of tangible personal property. This determination can be complicated and is often reached by looking at a variety of factors. In a somewhat analogous situation, we have determined that when a retailer provides both a truck and an operator, the transaction is not considered a taxable lease of property.' In cases such as this one, the Department tends to view the true object of the transaction as a non-taxable service if the operator controls the truck. However, if the retailer separately states the charge for the truck and operator, then the transaction is generally treated as a taxable rental of property and a non-taxable provision of a service.

We assume by full-service you mean that Company's employees are using and running the equipment rather than the customers. If this is the case, then it suggests that the true object of this transaction is not the rental of the equipment, but the performance of the service of truck washing. If the retailer is providing a non-taxable service, then the retailer's purchase of the equipment will be subject to use tax. The retailer is also liable for use tax on products, such as soaps and wax, used by the retailer to provide the service.

If a customer purchases wax and other protective coatings that are in their own packaging and intended to be applied by the customer and not the retailer, then the Department would probably view these purchases as a taxable sale of goods. If, however, those products are included in different levels of service (base level includes just a wash; mid-level includes base wash and protective coatings, top level includes base wash, protective coatings and wax), then sales tax would likely not apply but the retailer would be liable for use tax. Again, we do not reach any conclusion here on these issues.

See, Department Regulation 39-26-102.23, which can be viewed at www.colorado.gov/revenue/tax > Tax Library > Regulations > Final Regulations > Sales Tax

Additionally, §39-26-102(21)(a), C.R.S exempts certain uses of electricity and certain gases.

Sales and purchases of electricity, coal, gas, fuel oil, steam, coke or nuclear fuel, for use in processing, manufacturing, mining, refining, irrigation, construction, telegraph, telephone and radio communication, street and railroad transportation services, and all industrial uses, ... shall be deemed to be wholesale sales and shall be exempt from taxation under this part 1 [sales taxes].

The taxability of freight charges depends on anumber of factors, such as whether the freight charges are separately stated, whether they are optional, and who controls the freight. Fora more specific discussion of freight charges, we have included Department Publication FY] Sales 29, "Transportation Charges" for your convenience.

Miscellaneous

This letter represents the good faith opinion of Department personnel who are knowledgeable on state taxes issues. However, the Department does not make a specific determination here on any of the issues raised and the Department is not bound by this general information letter.

The Department administers state and state-administered local sales and use taxes. This letter does not address sales and use taxes administered by home-rule cities and home- rule counties. You may wish to consult with local governments which administer their own sales or use taxes about the applicability of those taxes. Visit our web site at www.colorado.gov/revenue/tax for more information about state and local sales taxes.

Enclosed is a redacted version of this letter. Pursuant to statute and regulation, this redacted letter 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 letter.

Sincerely,

Office of Tax Policy
Colorado Department of Revenue

TAXPAYER SERVICE DIVISION

FYI - For Your Information

Special Regulation: Transportation

Charges

1) The transportation of tangible personal
property between a retailer and purchaser
is a service presumed to be not subject to
sales or use tax. Transportation charges
are not taxable if they are both (1) sepa-
rable from the sales transaction, and (2)
stated separately on a written invoice or
contract.

a) “Transportation charges” include
carrying, handling, delivery, mileage,
freight, postage, shipping, trip charges,
stand-by, and other similar charges or fees.

b) Separable charges. Transportation
charges are separable from the sales
transaction if they are performed after the
taxable property or service is offered for
sale and the seller allows the purchaser the
option either to use the seller's transporta-
tion services or use alternative transporta-
tion services (including but not limited to
the purchaser picking up the property at
the seller's location). The fact that trans-
portation charges are stated separately
does not, in and of itself, mean the charges
are a separable charge.

c) Stated Separately. Transportation
charges will be regarded as “separately
stated” only if they are set forth separately
in a written sales contract, retailer's
invoice, or other written document issued
in connection with the sale.

d) Intermediate or “Freight in”
charges. Transportation charges in-
curred in connection with transporting
tangible personal property from the place
of production or the manufacturer to the
seller or to the seller's agent or represen-
tative, or to anyone else acting in the
seller's behalf, either directly or through
a chain of wholesalers or jobbers or other
middlemen, are deemed “freight -in"
charges and are not a transportation
charge exempt from tax.

e) Overstated Transportation
Charges. The amount of transportation
charges excluded from the calculation of
tax shall be the amount of transportation
charges separately stated in accordance
with subparagraph (c), provided that such
separate statement is not to avoid the tax
upon the actual sales price of tangible
personal property.

Colorado Department

of Revenue

Taxpayer Service Division
1375 Sherman St.
Denver, Colorado 80261

Forms and other services:
(303) 238-FAST (3278)
Assistance:

(303) 238-SERV (7378)
Fuel Tax: (303) 205-5602

www. taxcolorado.com

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