If a Colorado customer pays sales tax and later provides an exemption certificate, how and when can the seller refund the tax — and can the customer force the seller to do it?

Plain-English summary

A company that sells tangible personal property and collects Colorado state and local sales tax ran into a recurring headache: customers who are actually tax-exempt sometimes don't say so or don't hand over an exemption certificate at the time of sale. Months — or even years — later they short-pay an invoice or call to request a refund of the tax, certificate in hand. The company proposed a streamlined procedure and asked whether it complies with Colorado law:

1. Limit refunds to 90 days from the invoice date.
2. If there's no certificate at the sale, the customer pays in full and later provides the certificate.
3. The company reviews the certificate, issues the refund, and adjusts its next return.
4. For requests after 90 days, the company helps the customer file a refund claim with the state directly.

The Department's answer: the procedure — including the 90-day cutoff — "appears to be consistent with" Colorado's refund statutes. Key points:

• The company is right to collect tax from any buyer who doesn't establish an exemption at the time of sale (by presenting a valid Colorado sales tax license for resale, a Colorado exemption certificate, or an out-of-state license/certificate). The seller bears the burden of verifying the license or certificate.
• A vendor can return the tax two ways: credit the overpayment on line 3(c) of its sales tax return (DR 0100), or amend the return for the period and file a refund claim on DR 0137.
• A vendor's overpayment claim must be filed within three years after the due date of the return showing the overpayment, or one year after the overpayment, whichever is later (§ 39-26-703).
• A buyer cannot force a vendor to file a refund claim. If the vendor has already remitted the tax to the Department, that is a complete defense to the buyer's claim against the vendor. The buyer's remedy is to file its own claim with the Department on DR 0137B, "Claim for Tax Paid to Vendors" — though the Department asks buyers to request the refund from the vendor first.

What this means for you

Retailers and sellers handling exempt customers

You can set a reasonable refund window — the Department signaled that 90 days from the invoice is acceptable — and require customers to pay in full first, then produce the certificate. Beyond your window, you can legitimately point the customer to the state's own refund process instead of carrying the burden yourself. Either way, verify the certificate or license for the period before refunding; the burden is on you.

Tax-exempt buyers (resellers, charities, governments, contractors)

Show your certificate at the point of sale. If you forget and pay the tax, you can usually get it back — but you can't compel the seller to refund you, especially once the seller has paid the tax to the state. Your fallback is to file DR 0137B with the Department yourself, within the statutory window.

Accountants and tax professionals

The governing statute is § 39-26-703: vendor credit on DR 0100 line 3(c) or an amended return plus DR 0137; the three-years-or-one-year-whichever-is-later clock; the rule that no vendor can be compelled to file (the vendor's remittance is a complete defense, § 39-26-703(2)(c)); and the purchaser's direct route via DR 0137B. See FYI Sales 1 on documenting exempt sales. Watch the home-rule-city caveat below. Compare the documentation mechanics in [[gil-13-006-resale-exemption-certificates]].

Common questions

Q: How long does a Colorado seller have to refund sales tax after a customer provides an exemption certificate?
A: The seller can set its own reasonable window — the Department indicated a 90-day window from the invoice date is consistent with the statutes. A vendor's claim to the state for the overpayment must be filed within three years after the return's due date or one year after the overpayment, whichever is later.

Q: Can a customer force a seller to refund the tax?
A: No. Colorado law says no vendor can be compelled to file a refund claim, and if the seller already paid the tax to the Department, that's a complete defense. The customer can instead file its own claim with the Department.

Q: How does a buyer get the tax back directly from the state?
A: By filing form DR 0137B, "Claim for Tax Paid to Vendors," with the Department — though the Department asks the buyer to request a refund from the vendor first.

Q: What does the seller need before refunding safely?
A: A valid exemption certificate or sales tax license, verified for the period of the sale. The burden of verifying it is on the seller.

Q: Can I rely on this letter?
A: No. A General Information Letter is general guidance, not binding on the Department, and makes no determination on specific facts. It also doesn't cover self-collected home-rule city taxes.

Citations and references

Statutes and forms:
- § 39-26-703(1), (2), (2.5), C.R.S. (refund/credit of overpaid sales tax; vendor claims on behalf of a purchaser; time limits)
- § 39-26-703(2)(c), C.R.S. (no vendor can be compelled to file a refund claim; vendor's remittance is a complete defense)
- § 39-21-108 and § 39-21-110, C.R.S. (refund procedure and interest)
- Forms DR 0100 (sales tax return, line 3(c) credit), DR 0137 (claim for refund), DR 0137B ("Claim for Tax Paid to Vendors")
- Department FYI Sales 1 (documenting sales to retailers, tax-exempt organizations, and direct-pay permit holders)

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-13-002.pdf

Original ruling text

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

GIL-13-002
February 6, 2013
XXXXXXXXXXXXXXXXXX
ATTN: XXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXX
Re: Sales Tax Refunds When an Exemption Certificate Is Provided After the Sale
Dear XXXXXXXXXXX,
You submitted on behalf of XXXXXXXXXXXXXX (“Company”) a request for guidance regarding
Company’s proposed procedure to administer sales tax refunds when an exemption certification is
provided after the sale.
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
Is Company’s proposed procedure to administer sales tax refunds when an exemption certification
is provided after the sale compliant with Colorado statutes and regulations?
Background
Company sells tangible personal property on which it collects state and local sales taxes.
Customers occasionally do not tell Company at the time of the sale that they are exempt from
taxes or do not provide the appropriate exemption certificate. In some cases, customers will short
pay an invoice by the amount of taxes due and provide Company with the appropriate exemption
certificate, or will call Company’s customer support centers, provide the exemption certificate, and
request a refund of all applicable taxes. These requests are made either several months to several
years after the sale. Company’s current policy is to verify the accuracy of the certificate for the

period and grant the refund (if the invoice was paid in full) or offset the refund against the current
liabilities (in the case where Company already paid the taxes to the state and the customer short
paid the invoice).
Company states that this process has created an undue administrative burden on Company, its
customers, and state personnel. Company proposes the following procedure to alleviate the
administrative burden.
1. Limit the time period in which the Company will issue a refund of taxes to 90 days from the
date of the invoice.
2. If a customer fails to provide a certificate at the time of the sale, they are required to pay the
invoice in full and provide the appropriate exemption certificate to Company.
3. Once the customer provides the Company with the certificate, Company will review the
certificate to ensure it is applicable for the time period, and process the appropriate refund to
the taxpayer and make the adjustment on the next tax return.
4. For tax refund requests outside of the 90 day period, Company will work with customer to
complete the necessary department tax forms for claiming a tax refund and review the
accuracy of the refund claim. Once completed, customer will file the refund request with the
state.
Discussion
Company is correct that it must collect all applicable state-administered sales tax from purchasers
who do not establish that they are entitled to an exemption at the time of the sale. In order to claim
an exemption, purchaser must present retailer a copy of a valid Colorado sales tax license (to claim
the sale for resale exemption), a Colorado exemption certificate (for charitable organizations,
contractors, etc.), or an out-of-state sales tax license or exemption certificate at the time of sale. If
the customer does not provide a copy of a current Colorado sales tax license or exemption
certificate but only a Colorado sales tax license number or Colorado exemption certificate number,
Company must verify the validity of the license or certificate. Company can verify the validity of the
Colorado exemption number at www.Colorado.gov/revenue/tax > Online Services > Sales and Use
Taxes > Other Services (Verify Sales Tax License). For more information about how retailers must
document exempt sales tax transactions, see Department FYI Sales 1 “How to Document Sales to
Retailers, Tax-Exempt Organizations and Direct Pay Permit Holders,” which can be viewed at
www.Colorado.gov/revenue/tax > Tax Library > FYIs > Sales.
Customers typically have two methods by which they can claim a refund. A vendor may refund to
the customer the sales tax paid by customer and the vendor then claims the overpayment of tax on
line 3(c) of the sales tax return (DR 100) or, if there is insufficient tax due on the current sales tax
return against which to claim the credit, file an amended sales tax return for the period in which the
tax was paid, claim the exempt sale on line 2(b) of the return, and file a claim for refund on DR
0137. The overpayment must be claimed within certain time periods:
(a) Within three years after the due date of the return showing the overpayment or one
year after the date of overpayment, whichever is later, a vendor shall file any claim for
refund with the executive director of the department of revenue.
(b)(I) A vendor may claim a refund on behalf of any purchaser of the vendor if:
(A) The purchaser could timely file a claim for a refund on his or her own behalf; and
(B) The vendor establishes to the satisfaction of the executive director of the
department of revenue that the amount claimed, including any interest payable

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pursuant to section 39-21-110, has been or will be actually be paid by the vendor to
the purchaser.1
Alternatively, Colorado law allows a purchaser to file a refund claim with the Department for a sales
tax paid to a licensed vendor.
(c.5) The executive director of the department of revenue shall make a refund or allow a
credit to any person who establishes that he or she has overpaid the tax due pursuant to
this article [sales/use taxes].2
The refund claim is submitted on Department form DR 0137B “Claim for Tax Paid to Vendors”.3
The Department asks that the purchaser first request a refund from the vendor before submitting
the claim to the Department.
A purchaser cannot compel a vendor to file with the Department a claim for refund, including a
claim for refund as an overpayment of tax on the sales tax return, on behalf of the purchaser.
No vendor shall be compelled by any party to file a refund claim pursuant to paragraph
(b) of this subsection (2.5). It shall be a complete defense to any claim by a purchaser
against a vendor for tax collected in error that the vendor has paid the tax over to the
department of revenue. Any action by a purchaser for tax collected by a vendor in error
that has been remitted to the department must be made pursuant to subsection (2) of this
section and section 39-21-108.4
The procedure outlined in your letter, including the ninety day limitation, appears to be consistent
with these statutes.
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,
1
2
3
4

39-26-703(1)(2.5), C.R.S.
39-26-703(1)(c.5), C.R.S. You can view this statute on the Department’s web site at
www.colorado.gov/revenue/tax > Tax Library > statutes.
This form can be viewed and downloaded at www.Colorado.gov/revenue/tax > Forms > Sales.
39-26-703(2)(c), C.R.S.

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Office of Tax Policy
Colorado Department of Revenue

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