Is a separately stated 'core charge' on a recyclable automotive part subject to Colorado sales tax?

Plain-English summary

A tax advisor asked how Colorado sales tax applies to "core charges" — a separately stated charge on an automotive part "that has the capacity to be recycled, refurbished or remanufactured." The retailer adds the core charge when you buy the part (say, a car battery) and pays it back when you return the used "core." The Department broke it into three holdings:

1. The core charge is taxable when the part is bought. Sales tax is on the price paid by the customer, and "[t]he core charge is part of the purchase price … and, therefore, … is included in the calculation of sales tax, even if it is separately stated." It's separately stated only so customers know what the retailer will pay for the used part — it isn't separable from the sale of the part.

2. The buy-back is a separate sale, and the retailer owes the tax. "When a customer brings a used automotive part back … the retailer's payment for the used part (i.e., the core charge) is a separate sale." The retailer, not the customer, is liable for sales tax on that purchase of the used part — unless the transaction is otherwise exempt (e.g., the used part is a component used in manufacturing if refurbishing qualifies as manufacturing, or a wholesale purchase for resale). It can also be treated as a trade-in: if the retailer takes the used part as part payment for a new taxable part and resells the used part in the usual course of business, the core charge reduces the price the new part's tax is figured on. But if the retailer doesn't resell it in the usual course of business, the retailer's purchase of the trade-in is taxable.

3. It's not a refund, and not a returnable-container deposit. Sales tax is transactional — due once the sale happens. A refund of tax requires refunding the full purchase price, and no refund is allowed where the customer made significant use of the product (here the part was used), so the core charge is not a tax-refundable return (§ 39-26-102(12); GIL 2007-21). The Department also rejected treating it as a deposit: Special Regulation 9 (built on Department of Revenue v. Adolph Coors Co., 724 P.2d 1341 (Colo. 1986), the beer-keg-deposit case) exempts deposits on returnable containers held as security, but auto parts aren't containers and the core charge isn't a security deposit — it's "a contractual agreement by the retailer to purchase the used parts," essentially a recycling marketing program. Tellingly, if the customer sold the used part to a scrap dealer instead, that sale would be taxable — so there's no reason for a different result selling it back to the original retailer.

This is a General Information Letter — general guidance, not a binding determination.

What this means for you

Auto parts retailers and remanufacturers

Charge sales tax on the full price including the core charge when you sell the part — separately stating the core charge does not make it tax-free. When a customer returns a core, treat your buy-back as a separate purchase on which you generally owe tax, unless an exemption applies — for example, if you refurbish the core (and that's manufacturing) it may be an exempt component purchase, or if you resell cores it may be a wholesale purchase for resale. If you take a core as part payment toward a new taxable part, you can use the trade-in allowance to reduce the taxable price only if you resell cores in your usual course of business. Don't refund sales tax on the core return — it isn't a full-price refund.

Customers buying parts with core charges

Expect to pay sales tax on the core charge up front; getting the core charge back when you return the used part isn't a tax refund.

Accountants and tax professionals

Core charge = part of the purchase price (§ 39-26-104, 102(7)), inseparable, taxed even if separately stated. The return is a distinct "sale" (§ 39-26-102(10)) with the retailer as taxable purchaser, subject to component-in-manufacturing/resale exemptions (§ 39-26-102(21)) or trade-in treatment (§ 39-26-102(7)(a), conditioned on resale in the usual course). Not a § 39-26-102(12) full-price refund (GIL 2007-21); not a returnable-container deposit under Special Regulation 9 / Adolph Coors (724 P.2d 1341). Parallel-result reasoning: sale to a scrap dealer would be taxable too.

Common questions

Q: Is a core charge taxable in Colorado?
A: Yes. The core charge is part of the part's purchase price and is included in the sales tax even though it's separately stated.

Q: When the customer returns the core, is sales tax refunded?
A: No. It isn't a refund of the full purchase price (the part was used), so no tax refund applies. The return is treated as a separate sale.

Q: Who owes tax on the returned core?
A: The retailer, as the purchaser of the used part — unless an exemption applies (component used in manufacturing, wholesale purchase for resale) or it's a qualifying trade-in.

Q: Isn't a core charge just a deposit?
A: No. The Department rejected the deposit analogy. Returnable-container deposits (like beer kegs in the Adolph Coors case) are security held by the retailer; a core charge is a contractual agreement to buy the used part — a recycling marketing program — not a security deposit, and auto parts aren't containers.

Q: Can I use the trade-in allowance?
A: Only if you take the used core as part payment for a new taxable part and you resell cores in the usual course of your business. Then the core charge reduces the taxable price of the new part. If you don't resell cores in the usual course, your purchase of the trade-in is taxable.

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 — some treat core charges or deposits differently.

Citations and references

Statutes, rules, and cases:
- § 39-26-104, § 39-26-102(7), C.R.S. (sales tax on the purchase price; trade-in allowance)
- § 39-26-102(10), C.R.S. (definition of "sale")
- § 39-26-102(12), C.R.S. (tax refund requires the full purchase price be refunded)
- § 39-26-102(21), C.R.S. (component part used in manufacturing; wholesale purchase for resale)
- 1 CCR 201-5, Special Regulation 9 (returnable-container deposits); Department of Revenue v. Adolph Coors Co., 724 P.2d 1341 (Colo. 1986); GIL 2007-21 (no tax refund after the buyer has used the property)

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-17-017.pdf

Original ruling text

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

GIL-17-017
August 22, 2017
XXXXXX
Attn: XXXXXX
XXXXXX
XXXXXX
Re: Core charge
Dear XXXXXX,
You submitted on behalf of XXXXXX (“Company”) a request for guidance on the
application of sales tax to core charges.
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
1. Does Colorado sales tax apply to a separately stated charge (known as a
“core charge”) associated with an automotive part that has the capacity to
be recycled, refurbished or remanufactured to a useful state?
Background
Company provides tax guidance to its clients and requests guidance on the
application of sales tax to “core charges” used by some clients. Company defines
a core charge as “a separately stated charge associated with an automotive part
that has the capacity to be recycled, refurbished or remanufactured to a useful
state.” The retailer assesses the core charge when an automotive part is

purchased and pays the core charge when the customer returns the used auto
part. For example, a customer may purchase a car battery and pay the core
charge and, when the battery is depleted, the retailer will pay the core charge to
the customer either as a credit against the purchase price for a new battery or as
a cash payment not paid in connection with a purchase.
Discussion
Sales tax is calculated on the price paid by customers.1 The core charge is part
of the purchase price paid by the customer for the purchase of the automotive part
and, therefore, the charge is included in the calculation of sales tax, even if it is
separately stated.2
When a customer brings a used automotive part back to the retailer, the retailer’s
payment for the used part (i.e., the core charge) is a separate sale from the
original sale of the part by the retailer to the customer.3 The retailer, not the
customer, is liable for sales tax on the purchase of the used part, unless the
transaction is otherwise exempt.4
The retailer’s purchase of the used part may not be taxable if the transaction
qualifies as a “trade-in.”5 If a retailer accepts a used part in exchange for, and as
part consideration for, the sale of taxable tangible personal property (e.g., a new
automotive part) to the customer, then the core charge reduces the price on which
sale tax is calculated on the purchase, but only if the retailer resells the used part
in the usual course of the retailer’s business. If the retailer does not resell the
property in the usual course of its business, the retailer’s purchase of the trade-in
is taxable.
We considered whether the core charge qualifies as a refund of the purchase
price. In general, sales and use taxes are transactional taxes and the full amount
of the tax is due once the taxable event (either a sale or use) occurs, even if the
buyer ultimately does not fully consume the product or resells the product shortly
after purchasing the product. An exception to this rule applies when a customer
returns a previously purchased item and the retailer refunds the full purchase
price. However, the retailer must refund the “full” purchase price in order to
qualify for the tax refund.6 A refund of tax is not appropriate where a customer
has made any significant use of a product.7 The core charge is not a refund of the
full purchase price of the original part and, therefore, a refund of any tax is
1

§39-26-104 and 102(7), C.R.S.
The core charge is not separable from the sale of the automotive part. The core charge is
separately stated presumably so customers understand the price retailers will pay for the used
parts.
3
A sale is the transfer of tangible personal property for consideration. 39-26-102(10), C.R.S.
4
The retailer’s purchase of the used part may be exempt as the sale of a component part used in
the manufacturing of tangible personal property if the retailer refurbishes the used part and if
refurbishing qualifies as manufacturing. §39-26-102(21), C.R.S. The retailer’s purchase may
also not be taxable if the retailer resells the used part (i.e., a wholesale purchase for resale).
5
§39-26-102(7)(a), C.R.S.
6
§39-26-102(12), C.R.S.
7
See, Department General Information Letter (GIL)2007-21 (a refund of tax is inappropriate where
the buyer has used the property before returning it to the retailer for a refund)
2

2

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inappropriate.
We understand that some tax jurisdictions treat the core charge as a deposit on a
returnable product and permit the retailer to refund the sales tax calculated on the
core charge once the used part is transferred to the retailer. There is no statutory
provision that expressly governs deposits, but Department Special Regulation 98
states, in part, that “deposits” paid on “returnable containers” are not subject to
sales tax. This regulation does not apply to the returnable parts at issue here
because the automotive parts are not containers.
Moreover, it is inappropriate to extend the rationale underlying Special Regulation
9 to core charges. The deposit exemption in the regulation is based on the
decision in Department of Revenue v. Adolph Coors Company, 724 P2d 1341
(Colo. 1986) in which the court held that deposits paid to beer retailers by
customers who purchased beer sold in large returnable steel beer kegs are not
included in the calculation of the sales tax on the beer because the kegs were
owned by the retailer and the deposits were viewed as security to ensure the
return of the kegs rather than as consideration for the sale of the kegs. The core
charge is not a security deposit to ensure that the customer returns the used
automotive parts.
The core charge is a contractual agreement by the retailer to purchase the used
parts from its customers. It is more appropriate to view the core charge as a
marketing program that encourages customers to sell the used part to the retailer
rather than to a scrap metal dealer or dispose of it in a landfill. It is worth noting
that had the consumer sold the used automotive part to a third party, such as a
scrap metal dealer or a retailer of used parts, the sale would clearly be taxable.9
There is no rational basis for concluding that the tax result should be any different
if the consumer sells the used part to the original retailer.
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/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
8
9

3

1 CCR-201-5, Special Regulation 9
Sales by the consumer to a third party may be entitled to an exemption, such as the exemption
for a component used in the manufacturing of tangible personal property or as a non-taxable
wholesale purchase for resale.
DR 4010A (06/11/14)

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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