CO GIL 13-004 Sales & Use Tax 2013-02-06

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

Short answer: No. Natural gas and electricity bought for manufacturing and other industrial processes are exempt from Colorado state sales and use tax (§ 39-26-102(21)), and the Department's special districts follow the state base — they cannot elect to tax fuel used for industrial purposes that is exempt at the state level. So a processing facility's industrial-use gas and electricity is exempt from the special-district tax too, to the extent it qualifies for the state exemption (here, the energy studies indicated about 75% of electricity and 100% of the non-production gas was exempt). Residential fuel sold to the occupant is also state-exempt, though state-administered cities and counties — but not the exemption for industrial fuel — may elect to tax residential fuel. (This is a General Information Letter: general guidance only, not binding on the Department.)

Disclaimer: This is an official Colorado Department of Revenue General Information Letter (GIL). A GIL is a good-faith general overview of the tax law; it is NOT binding on the Department, makes no specific determination on the facts, and cannot be relied upon as a ruling. It does not address sales or use taxes administered by self-collected home-rule cities. This summary is informational only and is not legal or tax advice. Consult a licensed Colorado tax professional about your specific 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 runs a processing facility in Adams County that sits inside a special district levying sales and use tax. It pays state, county, and special-district tax on its electricity, and energy studies of its accounts indicated about 75% of its electrical use and 100% of its non-production gas qualify as exempt industrial use. The company had read FYI Sales 71 to suggest it might not be eligible for an exemption from the special-district taxes, and asked whether its gas and electricity are subject to those taxes (and, if so, how to remit past underpayments on the gas).

The Department's answer: fuel used for industrial purposes that is exempt at the state level cannot be taxed by the special district either.

Colorado levies sales/use tax on tangible personal property, but the sale of fuel — natural gas and electricity — for manufacturing and other industrial processes is exempt from state sales and use tax (§ 39-26-102(21)). Residential fuel sold to the occupant is also state-exempt (§ 39-26-715).
The Department administers the sales taxes of certain cities, counties, and special districts, and generally a transaction that is taxed or exempt at the state level is taxed or exempted at the local level too.
State-administered cities and counties may elect to tax residential fuel (§ 29-2-105(1)(d)(I)(B)). However, state-administered cities, counties, and special districts cannot elect to levy tax on fuel sales for industrial purposes that are exempt at the state level.

So the qualifying industrial-use portion of the company's gas and electricity is exempt from the special-district tax, not just the state tax — meaning the company had been over-paying the special-district tax on its exempt industrial fuel.

What this means for you

Manufacturers and industrial/processing facilities

If your gas or electricity is exempt as industrial-use fuel at the state level, the special district can't tax it either. Don't assume a special district (or county) can reach fuel that the state exemption covers — it can't, for industrial use. If you've documented an industrial-use percentage (e.g., via an energy study), apply that exemption against the special-district tax as well, and you may have grounds to recover past special-district tax paid on the exempt portion.

Businesses inside special districts (RTD, SCFD, etc.)

The default is conformity: special-district tax tracks the state base. The narrow place this matters is residential fuel, where state-administered cities and counties can elect to tax — but that election does not extend to industrial fuel, which stays exempt across the board.

Accountants and tax professionals

The controlling exemption is § 39-26-102(21) (fuel for manufacturing/industrial processes). Local conformity plus the carve-out in § 29-2-105(1)(d)(I)(B) means cities/counties may elect residential-fuel tax, but no local jurisdiction — including special districts — may tax industrial fuel the state exempts. Watch the home-rule-city caveat below: self-collected home-rule cities set their own rules and aren't covered here. For the broader fuel-and-electricity-by-use thread, compare [[gil-14-006-alternating-current-electricity]] and [[gil-14-009-demand-charge]].

Common questions

Q: Can a special district tax electricity or gas used in manufacturing?
A: No. Fuel for manufacturing and other industrial processes is exempt at the state level, and special districts (like cities and counties) cannot elect to tax industrial fuel the state exempts.

Q: Is industrial gas and electricity taxable at all in Colorado?
A: Not the portion used for manufacturing/industrial processes — that's exempt from state sales/use tax under § 39-26-102(21), and the exemption flows through to state-administered local and special-district taxes.

Q: What about residential fuel?
A: Fuel sold to a residential occupant is state-exempt, but state-administered cities and counties may elect to tax it. That election does not reach industrial fuel.

Q: We overpaid special-district tax on exempt industrial fuel — can we recover it?
A: The exemption applies to the special-district tax, so tax paid on the exempt industrial portion was an overpayment. Pursue a refund through the Department's refund process (see, e.g., the refund mechanics in [[gil-13-002-sales-tax-refunds-when-an-exemption-certificate-is-provided-after-the]]).

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:
- § 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.).