Are wood pellets sold for home heating exempt from Colorado sales tax?

Plain-English summary

A company asked whether the wood pellets it sells for home heating are subject to Colorado sales tax. The Department's answer: no, not when they are bought for residential use. Colorado exempts "all sales and purchases of … wood … sold for residential use" on and after June 10, 2016, and the Department concluded that "[w]ood pellets are obviously wood and are used as fuel for space heaters and stoves," so they "qualify for the exemption if purchased for residential use."

The statute defines residential use as using the fuel "for domestic purposes, including … stoves, water heaters, space heaters, … or other domestic items that require power or fuel in a residence." Because wood pellets are typically burned in pellet stoves and space heaters in homes, they fit squarely within the exemption. The Department even noted its understanding that "most wood pellets are purchased for residential use."

The catch is the residential-use condition: the exemption is about where and how the wood is used, not what it is. Wood pellets bought for a commercial or industrial purpose would not get this residential-energy exemption. And because this is a General Information Letter, it is general guidance — not a binding determination.

What this means for you

Retailers selling wood pellets, firewood, or heating fuel

Sales of wood (including wood pellets) for residential heating are exempt from state sales tax. Track the purchaser's use: a homeowner buying pellets to heat a house is a clear exempt residential sale, while a sale for a commercial operation may not qualify. Colorado's residential-energy exemption also covers other home heating fuels and electricity/gas for domestic use, so this fits a broader pattern.

Homeowners and consumers

You should not be charged Colorado state sales tax on wood pellets you buy to heat your home. Note the home-rule-city caveat below — a self-collected city could treat it differently.

Accountants and tax professionals

The exemption is § 39-26-715(1)(a)(II), C.R.S., effective for sales on or after June 10, 2016, and it hinges on the statutory definition of "residential use" (domestic purposes — stoves, space heaters, water heaters, and similar). The classification question is simply whether pellets are "wood" (they are) and whether the use is residential. Keep documentation of residential use where the buyer's purpose is not obvious.

Common questions

Q: Are wood pellets taxable in Colorado?
A: Not when sold for residential use. Wood — including wood pellets — sold for residential heating is exempt from state sales tax under § 39-26-715(1)(a)(II), effective for sales on or after June 10, 2016.

Q: What counts as "residential use"?
A: Using the wood for domestic purposes in a residence — stoves, space heaters, water heaters, and other domestic items that need fuel. The exemption follows the residential use, not just the product.

Q: What if I buy pellets for a business or commercial use?
A: The residential-use exemption would not apply. The Department's conclusion was limited to pellets purchased for residential use.

Q: Is this letter binding?
A: No. A General Information Letter is general guidance and is not binding on the Department; it makes no specific determination. For a binding answer, request a private letter ruling.

Q: Does this cover city sales tax?
A: No. The Department administers state and state-collected local taxes only. Self-collected home-rule cities and counties set their own rules — check with each.

Citations and references

Statutes:
- § 39-26-104(1), C.R.S. (imposition of sales and use tax on tangible personal property)
- § 39-26-715(1)(a)(II), C.R.S. (exemption for wood, including wood pellets, sold for residential use, on and after June 10, 2016; defines "residential use" as domestic purposes)

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-17-003.pdf

Original ruling text

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

GIL-17-003

January 24, 2017
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
Re: Wood Pellets
Dear XXXXXXXXXXX,
You submitted a request for guidance on whether the sale of wood pellets for residential
use is exempt for sales 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, but 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 1 CCR 201-1,
24-35-103.5.
The Department treats this request as a general information letter. It is important to
remember that general information letters, such as this one, are general discussions of tax
law and are not binding on the Department. If Company would like the Department to
issue a private letter ruling on the issue raised here, Company can submit a request and
pay the fee in compliance with Department Rule 1 CCR 201-1, 24-35-103.5.
Issue
Is the purchase of wood pellets for residential use exempt from sales tax?
Structure of Analysis
To determine whether the sale of wood pellets is exempt, the Department will examine the
following questions:
1. Does the sale of wood pellets fall within the exemption for the sale of wood for
residential purposes pursuant to 39-26-715(1)(a)(II), C.R.S.

Discussion
Colorado imposes sales and use tax on the sale, use, storage, and consumption, of
tangible personal property.1 Colorado exempts from such taxes the sale of wood, including
wood pellets, used for residential purposes.2 More specifically, §39-26-715(1)(a)(II),
C.R.S. states the following is exempt from sales tax,
(II) On and after June 10, 2016, all sales and purchases of ..., wood, ... sold
for residential use.
...
(C) “Residential use” means the use of ... wood ... for domestic purposes,
including ... stoves, water heaters, space heaters, ... , or other domestic
items that require power or fuel in a residence.
Wood pellets are obviously wood and are used as fuel for space heaters and stoves.
Therefore, wood pellets qualify for the exemption if purchased for residential use. It is the
Department’s understanding that most wood pellets are purchased for residential use.
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 homerule 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/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
2

§ 39-26-104(1), C.R.S.
§ 39-26-715(1)(a)(II), C.R.S.
DR 4010A (06/11/14)