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 that runs a full-service truck wash asked whether its washes are subject to Colorado sales/use tax, and whether it owes use tax on the things it buys to run the wash — soaps and cleaning agents, water/electricity/natural gas, salt for water softeners, wax and protective coatings, equipment and supplies, and freight. In a non-binding General Information Letter, the Department walked through the rules but reached no conclusion.
The pivot is the "true object" test for transactions that mix tangible goods with a service. Colorado taxes sales of tangible personal property but generally not services. When a customer pays for a full-service wash and the company's own employees run the equipment, the true object is the service of washing the truck — not a rental of the wash equipment to the customer. So the wash is treated as a non-taxable service.
The consequence of being a service provider: the company is the final consumer of everything it uses to perform the service, so it owes use tax on the equipment, soaps, wax, and other products it consumes in the wash. (The Department drew an analogy to its rule that a truck supplied with an operator who controls it is a non-taxable service rather than a taxable lease.)
Two wrinkles:
- Wax/coatings sold to the customer. If a customer buys wax or coatings in their own packaging to apply themselves, that's a taxable sale of goods. But if those products are just bundled into tiers of service (basic wash; wash + coating; wash + coating + wax), no sales tax applies and the company instead owes use tax on them.
- Energy. § 39-26-102(21)(a) treats electricity, gas, fuel oil, coal, steam, etc. used in processing, manufacturing, mining, and other industrial uses as exempt wholesale sales — so some of the wash's energy use may be exempt.
- Freight taxability depends on whether the charges are separately stated, optional, and who controls the shipment (FYI Sales 29, attached to the letter).
The Department stressed it did not decide any of these points.
What this means for you
Car-wash and truck-wash operators
If your staff runs the equipment (a true "full-service" wash), expect the wash to be a non-taxable service — which means you generally don't charge sales tax on the wash, but you do owe use tax on the soaps, wax, equipment, and supplies you consume. The picture flips toward a taxable rental if customers operate the equipment themselves, and selling retail products (wax in its own packaging for the customer to apply) is a taxable sale.
Accountants and tax professionals
This is a clean illustration of the service-provider/consumer rule: a non-taxable service means tax is paid on the inputs (use tax on consumables and equipment), not collected from the customer. Don't miss the § 39-26-102(21)(a) industrial-energy exemption on the wash's electricity and gas, and apply the freight/transportation factors (separately stated, optional, who controls) from FYI Sales 29.
Common questions
Q: Is a full-service truck or car wash taxable in Colorado?
A: When the operator's employees run the equipment, the wash is treated as a non-taxable service, so sales tax generally isn't charged on the wash itself. The operator instead owes use tax on the supplies and equipment it uses.
Q: Do I owe use tax on soaps, wax, and wash equipment?
A: Yes, generally. As the provider of a non-taxable service you're the final consumer of those items, so you owe use tax on them.
Q: What about wax I sell to a customer?
A: If you sell wax or coatings in their own packaging for the customer to apply, that's a taxable retail sale. If the wax is just part of a higher service tier you apply yourself, it's not a separate taxable sale — but you owe use tax on it.
Q: Can I rely on this letter?
A: No. It's a General Information Letter — non-binding general guidance, and the Department expressly made no determination. A private letter ruling would be needed for a binding answer on your facts.
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
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
- Isa full-service truck wash subject to Colorado sales and use tax?
- 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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