Does Colorado's interstate-commerce exemption apply to lease payments on trucks, and how is the exemption documented?

Plain-English summary

A company (Company A) leases truck tractors and semitrailers from Company B, permanently garages and services them at a Colorado facility, and uses them to haul cargo with an origin and/or destination outside Colorado. The tractors carry apportioned plates from a non-Colorado International Registration Plan (IRP) account (Colorado is listed as a participating jurisdiction on the cab card); the trailers carry non-Colorado plates; all stay registered outside Colorado, and within 30 days of delivery each one runs loaded to a point outside the state. Company A asked (1) whether Colorado's interstate-commerce exemption (§ 39-26-712(1)(b)) covers the lease payments, and (2) what affidavit documents the exemption.

1. Does the exemption reach lease payments? The exemption covers the purchase of a trailer, semitrailer, truck, truck tractor, or truck body for use exclusively outside Colorado or in interstate commerce, delivered in Colorado and driven/moved out of state within 30 days. By its terms it applies to "purchases." Company A leases, so the threshold question is whether the lease counts as a purchase:

• A long-term lease (more than three years) operates like a sale — the lessee pays sales tax on the lease payments — so it is treated as a purchase.
• A lease of three years or less is not treated as a sale (the lessor is the consumer) unless the Department has given the lessor permission to collect sales tax on the lease payments. With that permission, the ≤3-year lease is also treated as a "purchase." Without it, Company B must instead pay use tax on its own purchase/use of the vehicles unless the interstate-commerce exemption applies.

2. The catch — registration. Although the trucks aren't used "exclusively outside Colorado," they are used in interstate commerce and leave the state within 30 days, and the interstate-commerce branch of the exemption applies even when a trip originates or terminates in Colorado. But the Department reads the exemption to require that the vehicle not only be used in interstate commerce but also be correctly registered outside Colorado. Because Company A permanently garages, services, and repairs the vehicles in Colorado, the base of operation for IRP purposes appears to be Colorado — so the vehicles arguably should be registered in Colorado, which would make the lease payments taxable. The Department didn't formally decide the registration question, but warned that if the IRP requires Company A to designate Colorado as its base jurisdiction, the lease payments will likely be taxable. It also reserved the right to challenge the exemption — even for properly out-of-state-registered vehicles in part-time interstate use — if the vehicle is used more than incidentally for intrastate transportation within Colorado.

3. Affidavit. The lessee will furnish the lessor the affidavit required by § 39-26-713; for exempt motor-vehicle transactions the Department recommends form DR 0780.

What this means for you

Trucking companies and fleet operators

The interstate-commerce exemption isn't automatic for leased equipment. First, the lease has to count as a purchase — over three years always does; three years or less only if the lessor has permission to collect tax on the payments. Second, and more decisively, the trucks must be properly registered out of state. If you permanently garage, service, and repair the fleet in Colorado, the IRP base jurisdiction looks like Colorado, and the exemption likely fails — the lease payments become taxable.

Fleet lessors

Whether your ≤3-year lease is treated as a sale turns on whether you have Department permission to collect tax on the payments. Without it, you (the lessor) are the consumer and owe use tax on the equipment unless the exemption applies. Collect the § 39-26-713 affidavit (DR 0780) to document any exemption.

Accountants and tax professionals

Two doctrines stack here: (1) the lease-as-purchase rule (>3 years = sale; ≤3 years = sale only with permission to collect on payments — the same lease-term mechanics that run through Colorado's leasing letters), and (2) the Department's registration gloss on § 39-26-712(1)(b) — interstate use plus correct out-of-state registration, with IRP base jurisdiction (driven by where the fleet is garaged/serviced) as the pivot. Even valid registration can be challenged if intrastate Colorado use is more than incidental. Watch the home-rule-city caveat below.

Common questions

Q: Can the interstate-commerce exemption apply to truck lease payments?
A: Yes, but only if the lease is treated as a "purchase" — a lease over three years, or a lease of three years or less where the lessor has Department permission to collect tax on the payments.

Q: Why might the exemption still fail here?
A: Because the Department reads the exemption to require the vehicles be correctly registered outside Colorado. Permanently garaging and servicing them in Colorado makes the IRP base jurisdiction look like Colorado, suggesting they should be registered in-state, which would make the lease payments taxable.

Q: Does a trip starting or ending in Colorado disqualify the exemption?
A: Not by itself. The interstate-commerce branch applies even when a trip originates or terminates in Colorado — but more-than-incidental purely intrastate Colorado use can lead the Department to challenge the exemption.

Q: How do I document the exemption?
A: With the affidavit required by § 39-26-713; the Department recommends form DR 0780 for exempt motor-vehicle transactions.

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, rules, and forms:
- § 39-26-712(1)(b), C.R.S. (exemption for motor vehicles used exclusively outside Colorado or in interstate commerce)
- § 39-26-713, C.R.S. (affidavit documenting exempt motor-vehicle transactions)
- Department Rule 24-35-103.5 (GIL / PLR procedure)
- Form DR 0780 (recommended affidavit for exempt motor-vehicle purchases)

Related rulings: [[gil-15-023-sale-and-leaseback-transactions]] (lease-term mechanics: >3-year lease = sale; ≤3-year lessor is consumer), [[gil-14-016-prepaid-fuel-and-transportation-charges]] (motor-vehicle rental), [[gil-14-003-domestic-jet-fuel-used-in-international-flights]] (interstate/foreign commerce and Colorado tax).

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-14-021.pdf

Original ruling text

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

GIL-14-021
October 9, 2014
XXXXXXXXXXXXXXXX
Attn: XXXXXXXXXXXX
XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX
Re: Lease Payments on Vehicles Used in Interstate Commerce
Dear XXXXXXXXXX
You submitted on behalf of your client (“Company”) a request for guidance on whether certain lease
payments for vehicles used in interstate commerce are subject to sales or use tax, and to clarify the
procedure to document the exemption.
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
1) Does the sales or use tax exemption pursuant to §39-26-712(1)(b), C.R.S. (motor vehicles
used in interstate commerce) apply to periodic lease payments for certain types of interstate
commerce vehicles?
2) What affidavit provides sufficient documentation of the sales tax exemption pursuant §3926-712(1)(b), C.R.S.?
Background
Company A leases truck tractors and semitrailers from Company B. Company A permanently
garages the truck tractors and semitrailers at its facility in Colorado. The Department presumes
that Company A also services and repairs the truck tractors and semitrailers at such facility.
Company A will use the truck tractors and semitrailers throughout the lease term to transport
cargo that has a point of origin and/or destination outside of Colorado.

The truck tractors are registered with apportioned license plates obtained through a nonColorado International Registration Plan (IRP). Colorado is a participating jurisdiction of the
IRP and is listed in the IRP cab card for each truck tractor. The trailers are registered with a
non-Colorado license plate. All truck tractors and semitrailers Company A leases from
Company B will remain permanently licensed and registered outside of Colorado throughout
the lease.
Within 30 days of taking delivery of the truck tractors and semitrailers, Company A will operate
the truck tractors and semitrailers loaded with cargo to a point outside of Colorado. The truck
tractors and semitrailers will be continually used in interstate commerce, moving cargo that has
a point of origin and/or destination outside Colorado either between points in Colorado and/or
across Colorado state lines. Company represents that the vast majority of the transportation
will involve interstate commerce. A shipping document is maintained by Company A to
evidence the out-of-state move of each truck tractor and semitrailer.
Discussion
1) Exemption for Vehicles Used Exclusively Outside Colorado or In Interstate Commerce
In general, the purchase of a new or used trailer, semitrailer, truck, truck tractor, or truck body
for use exclusively outside Colorado or in interstate commerce and delivered by a Colorado
manufacturer or dealer within Colorado, driven or moved by the buyer outside the state within
thirty days after the delivery date is not subject to the sales tax at the time of purchase. The
interstate commerce exemption applies to “purchases”.
In this case, Company A does not “purchase” the truck tractors and semitrailers but, rather,
leases them. Leases on which sales tax is paid on the lease payments qualify as
purchases. A sale/purchase is a transaction in which tangible personal property is exchanged
for consideration and the buyer is liable for the tax. A long term lease (more than three years)
operates much in the same way as a sale/purchase. A long term lease is the exchange of
property for consideration and the lessee must pay sales tax on the lease payment. Thus, long
term leases are treated as a sale or purchase.
If the lease term is for three years or less, then the lease payments are not treated as a sale
(the lessor is treated as the consumer of the goods), unless the Department gives the lessor
permission to collect sales tax on the lease payments. Therefore, the Department will also
treat a lease of three years or less as a “purchase” if Company B has permission from the
Department to collect sales tax on the lease payments. For leases that are three years or less
and Company B does not have permission to collect tax on lease payments, then Company B
must pay use tax on its purchase and use of the truck tractors and semitrailer unless the
interstate commerce exemption applies.
Although these vehicles are not used “exclusively outside Colorado”, they are apparently used
in “interstate commerce” and are driven outside Colorado within thirty days. Unlike the
exemption for “use exclusively outside Colorado”, this portion of the exemption applies even if
the trucks or trailers have an originating or terminating point in Colorado because this is
interstate commerce. However, the Department has interpreted this provision to mean that the
vehicle must not only be used in interstate commerce but that it be correctly registered outside
Colorado. Because Company A permanently garages, services and repairs, the truck tractors
and semitrailers at its facility in Colorado, it would appear that the base of operation for IRP
purposes is in Colorado, and, therefore, the vehicles should be registered in
Colorado. However, we have not made a determination here whether the vehicles should be
registered in Colorado. If the International Registration Plan requires Company A to designate
Colorado as its base jurisdiction, the lease payments will likely be subject to sales tax. Finally,
the Department may challenge the application of the exemption, even if the vehicles were
properly registered in another state pursuant to the IRP and engaged in interstate commerce
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only on a part time basis, if Company used the vehicle more than incidentally to provide
intrastate transportation services in Colorado.
2)

Affidavit
Firm notes that Company A will furnish Company B with an affidavit required by §39-26-713,
C.R.S. For sales or tax exempt motor vehicle purchases, the Department recommends that
purchasers use the DR 0780.
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

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