Are the RFID tracking tags that marijuana growers are required to use exempt from Colorado sales and use tax as farm equipment?

Plain-English summary

Colorado requires marijuana growers to attach RFID (radio-frequency identification) tags to track each plant through its life and the dried product through the supply chain — each tag carries a unique 24-digit number tied to the state's Marijuana Inventory Tracking System (the letter calls it "METRIC") that the Marijuana Enforcement Division uses to monitor product movement. The tags are discarded along the way and never reach the final consumer. A firm asked whether buying these mandatory tags is subject to sales and use tax.

The Department's answer: yes, they're taxable. Colorado taxes the sale, use, storage, or consumption of tangible personal property unless an exemption applies, and exemptions are narrowly construed — if an exemption doesn't clearly apply, it's denied.

The firm argued the tags are exempt farm equipment (treated as a "label"), citing the Department's publication FYI Sales 13. The Department rejected that:

• FYIs aren't binding. They're a good-faith effort to explain tax topics in plain language, but they don't replace, alter, or supersede Colorado law, and only the Executive Director can bind the Department.
• The statute doesn't cover labels. The farm-equipment exemption (§ 39-26-716(1)(d)) is very specific and lists an exclusive set of exempt items that does not include labels.
• The regulation was fixed to match. Special Regulation 2 (Agricultural Products and Equipment) was amended (effective May 30, 2014) to exclude "label" from its definition of farm equipment. FYI Sales 13 simply hadn't been updated to reflect the change (the Department said FYIs referencing special regulations were being withdrawn).

So unless some other exemption applies, marijuana RFID tags are taxable when purchased by cultivators. Because labels aren't farm equipment, the Department said it didn't need to reach — and declined to decide in a GIL — whether marijuana itself is an "agricultural product."

What this means for you

Marijuana cultivators

The state-mandated RFID tags you must buy are taxable purchases. Being required to use them — and the fact that they're thrown away and never sold to a consumer — doesn't make them exempt. Budget for sales/use tax on tracking-tag purchases.

Agricultural businesses generally

Don't rely on a FYI publication over the statute and regulation — FYIs aren't binding and can lag changes in the law. The farm-equipment exemption is an exclusive list (§ 39-26-716(1)(d)); items not on it (like labels) are taxable, and the Department amended Special Regulation 2 in 2014 to drive that home.

Accountants and tax professionals

Two durable points: (1) exemptions are narrowly construed and an exclusive statutory list won't be expanded by analogy; and (2) FYIs are non-binding guidance that can be out of date, so check the current statute and regulation. The Department resolved the case on the label point alone and expressly left the "is marijuana an agricultural product?" question open. Watch the home-rule-city caveat below.

Common questions

Q: Are marijuana RFID tracking tags taxable in Colorado?
A: Yes. They're taxable tangible personal property when purchased by cultivators; the farm-equipment exemption doesn't cover labels.

Q: Aren't they exempt farm equipment?
A: No. The farm-equipment exemption (§ 39-26-716(1)(d)) is an exclusive list that doesn't include labels, and Special Regulation 2 was amended effective May 30, 2014 to exclude labels explicitly.

Q: The FYI publication said they were exempt — doesn't that count?
A: No. FYIs are general, non-binding guidance and can be out of date. Only the Executive Director can bind the Department, and the controlling authority is the statute and regulation.

Q: Did the Department decide whether marijuana is an agricultural product?
A: No. Because labels aren't covered regardless, it didn't need to reach that question and declined to decide it in a general information letter.

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

Citations and references

Statutes and rules:
- § 39-26-716(1)(d), C.R.S. (farm-equipment exemption — exclusive list; labels not included)
- Special Regulation 2 (Agricultural Products and Equipment), amended effective May 30, 2014 (labels excluded)
- Department Rule 24-35-103.5 (GIL / PLR procedure)
- Department publication FYI Sales 13 (non-binding; referenced an outdated version of Special Regulation 2)

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-14-020.pdf

Original ruling text

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

GIL-14-020
October 2, 2014
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
Re: Marijuana RFID Tags
Dear XXXXXXXXXXX,
You (“Firm”) submitted a request for guidance to determine whether or not marijuana radio
frequency identification (“RFID”) tags are subject to sales and use tax.
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 Rule 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 Department Rule 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 marijuana RFID tags subject to sales and use tax?
Background
Marijuana RFID tags are commonly used to both identify and track marijuana. The tag digitally
tracks a marijuana plant throughout its life by attaching a number to the product and tracking its
movement throughout the supply chain up to the point of sale. It is the grower’s duty to give
each plant a RFID tag with a unique 24-digit identification number at the beginning of its life. As
the plant matures and is harvested, the dried product is packaged for shipment to retailers and
the grower affixes a new RFID tag to the dry product’s packaging. The new RFID tag number is
linked to the previous tag number to keep a record of the product’s history. The RFID tags are
linked to a state-mandated software program called the Marijuana Inventory Tracking System
(“METRIC”). The Marijuana Enforcement Division of the Colorado Department of Revenue
(“MED”) uses this software to monitor the movement of marijuana in the supply chain. RFID

tags are discarded by marijuana businesses at appropriate times in the supply chain and they
do not reach the final consumer. The MED requires the use of RFID tags on marijuana to
ensure proper handling and recording of the product.
Discussion
Colorado levies sales and use tax on the sale, use, consumption, or storage of tangible
personal property, unless an exemption applies. As an initial matter, we note that exemptions
from tax are narrowly construed. Unless an exemption clearly applies, the exemption must be
denied.
Firm cites FYI Sales 13 (10/02) in its argument and asserts that marijuana RFID tags fall within
the exemption for farm equipment as a label. FYIs provide general information concerning a
variety of Colorado tax topics in simple and straightforward language. Although the FYIs
represent a good faith effort to provide accurate and complete tax information, the information is
not binding on the Colorado Department of Revenue, nor does it replace, alter, or supersede
Colorado law and regulations. The Executive Director, who by statute is the only person having
the authority to bind the Department, does not formally review or approve FYIs. FYI Sales 13
referred to an outdated version of Special Regulation 2 (Agricultural Products and Equipment).
Special Regulation 2 (Agricultural Products and Equipment) was amended and the amended
version became effective on May 30, 2014.
§39-26-716(1)(d), C.R.S does not include labels in the definition of farm equipment. The statute
is very specific and refers to an exclusive list of exempt items, not including labels. Therefore,
Special Regulation 2 (Agricultural Products and Equipment) was amended to reflect the statute
by excluding label from its definition of farm equipment. This change was not yet reflected in
FYI Sales 13. The Department will work diligently to address this discrepancy (FYIs referring to
special regulations are being withdrawn, but the website will not be updated until October 1,
2014).
Therefore, unless some other exemption applies, marijuana RFID tags are subject to sales or
use tax when purchased by marijuana cultivators. Because the farm equipment exemption does
not include labels, the Department does not need to reach the issue of whether or not marijuana
is an agricultural product and we decline to do so in a general information letter.
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,
2

DR 4010A (06/11/14)

Office of Tax Policy
Colorado Department of Revenue

3

DR 4010A (06/11/14)