Can a Colorado special district levy its sales tax on natural gas and electricity that a business buys for industrial/manufacturing use?

Plain-English summary

A company operating a processing facility asked whether its natural-gas and electricity purchases were subject to special-district taxes and how it should remit a claimed past underpayment. The company supplied energy-study percentages, but the Department said the GIL was a general discussion and made no specific determination on any issue raised.

The letter explains that fuel for manufacturing and other industrial processes is exempt from state sales and use tax. It says state-administered cities, counties, and special districts generally follow state taxability or exemption, and that those entities cannot elect to tax fuel for industrial purposes that is exempt at the state level. It separately notes that state-administered cities and counties may elect to tax residential fuel.

The GIL does not evaluate the company's claimed 75% electricity or 100% gas exemption, find an overpayment, or give a refund procedure. It also does not address taxes administered by home-rule cities or counties.

What this means for you

Industrial fuel

The letter describes the general state and state-administered local treatment for fuel used in industrial processes. It does not decide whether a particular facility's purchases qualify or how a special district should calculate a taxpayer's liability.

Claimed energy-study percentages

The 75% and 100% figures appear in the company's background description. The Department did not evaluate or adopt those figures and did not determine that the company overpaid tax or is entitled to a refund.

Common questions

Q: Does this GIL decide that the processing facility's electricity and gas are exempt?
A: No. It explains the general industrial-fuel exemption but expressly says it makes no specific determination on the issues raised.

Q: Did the Department find that the company overpaid special-district tax?
A: No. The company asked how to remit a claimed past underpayment, and the letter does not find an overpayment or decide that question.

Q: Does the letter establish the treatment of home-rule taxes?
A: No. It expressly says it does not address sales and use taxes administered by home-rule cities and counties.

Citations and references

Statutes:

• § 39-26-102(21), C.R.S. (exemption for fuel used for manufacturing and other industrial processes)
• §§ 39-26-715(1)(a)(II), (2)(c), C.R.S. (residential-fuel exemption)
• § 29-2-105(1)(d)(I)(B), C.R.S. (state-administered cities/counties may elect to tax residential fuel)
• Special-district enabling statutes: §§ 32-9-119(2)(a), 32-13-107(1)(a), 39-14-114(1), 32-17-113(1), 32-18-107, 32-19-112(1), 30-20-604.5, C.R.S.

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-13-004.pdf

Original ruling text

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

GIL-13-004
February 6, 2013
XXXXXXXXXXXXXXXXXX
ATTN: XXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXX
Re: Special District Taxes
Dear XXXXXXXXXXXX,
You submitted on behalf of your client (“Company”) a request for guidance to determine whether Company’s natural gas and electricity purchases are subject to special district taxes. 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 Are Company’s natural gas and electricity purchases subject to special district taxes? If so, how does Company remit the underpayment of special district taxes for their past purchases of natural gas?

Background
Company operates a processing facility located in Adams County and is in a special district jurisdiction that levies a sales and use tax. Company is paying state, county and special district taxes on its electricity purchases. Company has also conducted energy studies on two electric and

two gas accounts, which Company claims result in a seventy-five percent exemption for Company’s electrical use and one-hundred percent exemption of Company’s gas usage (non-production gas usage is delivered to the plant through separate gas accounts and gas lines). Company understands FYI Publication Sales 71 to suggest that Company may not be eligible for an exemption from the special district taxes. Discussion Colorado levies sales and use tax on the sale, use, storage, and consumption of tangible personal property. However, the sale of fuel, such as natural gas and electricity, for manufacturing and other industrial processes is exempt from state sales and use tax.1 Sales of fuel for residential purposes and sold to the occupant is also exempt from state sales and use taxes.2 The Department administers the sales taxes of certain cities, counties and special districts. In general, if a transaction is subject to sales tax or an exemption at the state level, the transaction is also taxed or exempted at the local level, although there are some differences not relevant here. State-administered cities and counties may elect to levy tax on the sale of fuel for residential purposes.3 However, state-administered cities, counties, and special districts cannot elect to levy sales or use tax on fuel sales for industrial purposes that are exempt at the state level.4 Miscellaneous This letter represents the good faith opinion of Department staff who are knowledgeable of 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
1
2

3
4

See, §39-26-102(21), C.R.S. You can view this statute at the Department’s web site at www.colorado.gov/revenue/tax > Tax Library > Statutes. 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) (ll) and (2)(c), C.R.S.
§29-2-105(1)(d)(I)(B), C.R.S.
See, Regional Transportation Authority, Scientific and Cultural Facilities District, Baseball District, Mental Health Care Service Districts, Forest Improvement District, and Local Improvement Districts (32 9-119(2)(a), 32-13107(1)(a), 39-14-114(1), 32-17-113(1), 32-18-107, 32-19-112(1), and 30-20-604.5, C.R.S.).

2