Does Colorado's low-emitting heavy-vehicle exemption carry through to a long-term lease, and who is the 'dealer' that completes Form DR 1369?
Plain-English summary
Colorado exempts motor vehicles that meet certain low-emission standards from sales and use tax (§ 39-26-719). A leasing operation asked whether that exemption reaches a long-term lease of such a vehicle, and how to handle the paperwork (Form DR 1369). In the setup, a third party buys the vehicles and enters into 75-month leases with lessees, then assigns those leases to the Company; the purchase, lease, and assignment happen simultaneously, and the vehicles are registered out of state but garaged in Colorado.
Does the exemption flow through to the lease? Yes. A long-term lease — one longer than three years — is treated as a sale for sales and use tax purposes (§ 39-26-102(23)). Because the exemption applies to sales, and the lease is taxed like a sale on the lease payments, the low-emitting-vehicle exemption likewise applies to the tax that would otherwise be collected on those long-term lease payments.
Who is the "dealer" for Form DR 1369? A person is presumed a motor vehicle dealer if it sells or leases three or more motor vehicles in a calendar year (§ 12-6-102(13)). So if the third party sells or leases three or more vehicles in a year, that third party is the "dealer" for completing Form DR 1369. The Company is not the dealer here, because it did not enter into the lease with the lessee — it merely took the lease by assignment. As for the three qualifying documents the form requires, either the lessee or the dealer may file them.
What this means for you
Vehicle leasing companies and fleet operators
If you're leasing a qualifying low-emitting vehicle on a term longer than three years, the exemption should carry through and spare the lease payments from sales/use tax — because Colorado taxes a long-term lease as if it were a sale. Identify correctly who the "dealer" is for the DR 1369 paperwork: it's the party that actually leased to the end customer and that hits the three-vehicles-a-year threshold, not a finance company that only took an assignment of the lease.
Trucking and heavy-vehicle businesses
The flow-through means you don't lose a vehicle-level emissions exemption just because you lease rather than buy outright — provided it's a long-term lease. Keep the qualifying documentation (the three items behind Form DR 1369) in order; either you (the lessee) or the dealer can submit them.
Accountants and tax professionals
The mechanism is the long-term-lease-as-sale rule (§ 39-26-102(23)) coupling the exemption (§ 39-26-719) to lease payments. The "dealer" determination turns on the three-or-more presumption in § 12-6-102(13) and on who entered the lease with the lessee; an assignee is not automatically the dealer. (Short-term leases, taxed instead at the lessor's acquisition, aren't the subject here.)
Common questions
Q: Does the low-emitting-vehicle exemption apply to a leased vehicle?
A: On a long-term lease (over three years), yes — the lease is treated as a sale, so the exemption flows through to the lease payments.
Q: Who is the "dealer" that completes Form DR 1369?
A: The party that sells or leases three or more vehicles in a calendar year and that entered the lease with the lessee. A company that only took the lease by assignment is not the dealer.
Q: Who files the three qualifying documents?
A: Either the lessee or the dealer may file them.
Q: Does it matter that the vehicle is registered out of state but garaged in Colorado?
A: The Department framed the exemption as flowing through the long-term lease regardless; this letter doesn't make a binding determination on any particular registration/garaging facts.
Q: Can I rely on this letter?
A: No. A General Information Letter is general guidance and is not binding on the Department; it makes no determination on any specific facts. It also doesn't cover self-collected home-rule city taxes.
Citations and references
Statutes and rules:
- § 39-26-719, C.R.S. (low-emitting motor vehicle sales/use tax exemption)
- § 39-26-102(23), C.R.S. (long-term lease treated as a sale)
- § 12-6-102(13), C.R.S. (motor vehicle dealer; three-or-more presumption)
- Department Rule 24-35-103.5 (GIL / PLR procedure)
Forms:
- DR 1369 (low-emitting-vehicle exemption documentation)
Source
- Landing page: Colorado Sales & Use Tax Letter Rulings
- Original PDF: GIL-15-007.pdf
Original ruling text
Office of Tax Policy, P.O. Box 17087, Denver, CO 80217-0087 ([email protected])
GIL-15-007 — March 10, 2015
Re: Leases of Low-Emitting Heavy Vehicles
You submitted on behalf of the Company a request for guidance to determine the applicability of Colorado sales or use tax on the lease of a low-emitting heavy vehicle. […] The Department initially treats your request as one of a general information letter.
Issue
- Does the low-emitting heavy vehicle exemption flow through to the long-term lease?
- If the exemption applies to leases, how is Form 1369 completed, and who is required to file the three documents set forth in Form 1369?
Background
Company is in the business of leasing motor vehicles. A third party purchases motor vehicles and then enters into leases with lessees. The lease period is seventy-five months. The third party then assigns the leases to Company. The purchase, lease, and assignment occur simultaneously. Vehicles are registered in another state and garaged in Colorado. Company represents that the motor vehicles meet the requirements of the sales and use exemption for low-emitting vehicles.
Discussion
Motor vehicles that meet certain emission standards are exempt from sales and use tax. [§ 39-26-719, C.R.S.] A long-term lease (a lease longer than three years) is treated as a sale for sales and use tax purposes. [§ 39-26-102(23), C.R.S.] Thus, exemptions apply to sales and use taxes collected on long-term lease payments.
A person is presumed a motor vehicle dealer if it sells or leases three or more motor vehicles in a calendar year. [§ 12-6-102(13), C.R.S.] If the third party sells or leases three or more cars in a calendar year then the third party is the "dealer" for purposes of completing form 1369. Company is not a dealer because it did not enter into the lease with the lessee — it took the lease by assignment.
Either the lessee or dealer may file the three qualifying documents set forth in Form 1369.
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.
(Condensed from the official PDF; see the linked source for the complete text and footnotes.)