Does a church have to collect Colorado sales tax on prepared meals and prepackaged food it sells to members, or can those sales be exempt as occasional sales?

Plain-English summary

A Colorado church sells prepared hot meals and prepackaged food to its members, and asked whether it must collect sales tax. The short version: a charity being a charity doesn't make its sales tax-free. Sales by charitable organizations — churches included — are generally subject to sales tax, but they can be exempt as "occasional sales" if they stay within strict limits.

The occasional-sales test (all three required, per calendar year):

1. No more than 12 days of sales in the calendar year;
2. The funds raised are retained by the organization and used in its charitable service; and
3. Net proceeds do not exceed $25,000 in the calendar year. (Net proceeds = total gross receipts minus expenses directly attributable to the event.)

There's a sharp cliff built into this: if the organization fails any of these conditions during the year, then all sales that year become taxable — including earlier sales that were made while the church was still within the limits. So blowing past 12 days, $25,000, or diverting the funds doesn't just tax the sales going forward; it retroactively taxes the whole year.

Two more wrinkles the letter flags:

• Food rules still apply on top. Some food is exempt regardless: food marketed for home consumption is exempt, but items marketed for immediate consumption — the letter names soda and candy — are taxable and must have tax collected. (And these food sales still count toward the occasional-sales day/dollar thresholds.)
• Local jurisdictions may not match. A state-administered local jurisdiction might not offer the same occasional-sales exemption. If it doesn't, local sales tax is due on all the church's sales there. Department Form DR 1002 lists which state-administered local jurisdictions tax charitable occasional sales.

Because this is a General Information Letter, it's general guidance only and not binding on the Department.

What this means for you

Churches and charitable organizations

If you sell meals, baked goods, or other items at events, track your days, your net proceeds, and where the money goes. Staying at 12 days or fewer, under $25,000 net, and using the funds for your mission keeps the sales exempt at the state level. But watch the retroactive cliff: if a busy year pushes you over a threshold, you owe tax on the entire year's sales, not just the ones after you crossed the line. Track in real time so a December fundraiser doesn't retroactively tax your spring bake sale.

Churches that already collect tax (like the one here)

This church was already collecting tax on its meals and prepackaged food. If your sales genuinely qualify as occasional sales, you may not need to — but if you're unsure whether you'll stay under the thresholds, collecting can be the safer course, since exceeding a limit taxes the whole year. Consider a binding private letter ruling if the stakes are significant.

Accountants and tax professionals

The occasional-sales exemption (§ 39-26-718(1)(b)(II)) is a three-condition, all-or-nothing, calendar-year test with a retroactive failure rule (Department Regulation § 39-26-718(7)(b)(ii)(C)). Net proceeds are gross receipts minus directly attributable event expenses. Layer the food rules on top (home vs. immediate consumption, § 39-26-102.4.5(2)) — taxable food items still count toward the thresholds. And check local conformity via DR 1002; non-conforming locals tax all sales.

Common questions

Q: Does a church have to collect Colorado sales tax on food it sells?
A: Generally yes, unless the sales qualify as occasional sales — no more than 12 days a year, funds kept and used for the charitable purpose, and net proceeds under $25,000. Separately, food for home consumption is exempt, but immediate-consumption items like soda and candy are taxable.

Q: What happens if we go over 12 days or $25,000?
A: Failing any condition makes all of that calendar year's sales taxable — including sales you made earlier in the year while you were still within the limits. The failure is retroactive to the whole year.

Q: Do exempt food sales count toward the 12 days and $25,000?
A: Yes. Occasional sales of prepared hot meals or prepackaged food count toward the same thresholds, even where particular food items are themselves exempt.

Q: Does this cover city sales tax?
A: No — and local rules may differ. A state-administered local jurisdiction may not offer the occasional-sales exemption, in which case local tax is due on all sales; see Form DR 1002. Self-collected home-rule cities set their own rules entirely.

Citations and references

Statutes and rules:
- § 39-26-718(1)(b)(I), C.R.S. (sales by charitable organizations generally taxable)
- § 39-26-718(1)(b)(II)(A), (C), C.R.S. (occasional-sales exemption; 12-day limit and $25,000 net-proceeds threshold)
- § 39-26-718(1)(b)(II)(B), C.R.S. (funds retained and used for the charitable purpose)
- Department Regulation § 39-26-718(7)(b)(ii) (calculating net proceeds; retroactive loss of exemption when a condition fails)
- Department Regulation § 39-26-102.4.5(2) (food for home consumption vs. immediate consumption)
- Department Form DR 1002 (state-administered local jurisdictions; whether they tax charitable occasional sales); FYI Sales 4 (taxable/exempt food)

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-18-006.pdf

Original ruling text

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

GIL-18-006
February 27, 2018
XXXXXX
XXXXXX
XXXXXX
Re: Taxable Nature of Church Sales
Dear XXXXXX,
You submitted a request for guidance on behalf of XXXXXX (“Church”) regarding
whether certain sales conducted by the Church are exempt from 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
Must the Church collect sales tax on the price of meals or pre-packaged food it
sells to Church patrons?
Background
A Church, located in Colorado, sells to its members prepared hot meals and
certain prepackaged food items produced by the church. The Church currently
collects sales tax on its sales of prepared meals and prepackaged foods.

Discussion
Sales made by charitable organizations, such as churches, are generally subject to
state sales tax but may be exempt if the sales qualify as occasional sales.1
Occasional sales are sales by a charitable organization that (a) occur up to but no
more than 12 days in a calendar year, (b) the funds raised from the sales are
retained by the charitable organization and used in the course of the organizations’
charitable service,2 and (c) from which net proceeds3 do not exceed $25,000 in a
calendar year.4 If, in a calendar year, the organization fails to meet any of these
requirements, then all sales in that calendar year, including prior sales that were
made when these conditions were being met, are subject to sales tax.5
Occasional sales by the Church of prepared hot meals or prepackaged food count
towards the same threshold of the occasional sales exemption. It is important to
note that the sales of some food items are exempt from sales tax. Food marketed
for “home consumption” is exempt from sales tax, but many food items such as
sodas and candy marketed for “immediate consumption” are not exempt and sales
tax must be collected when sold.6
The Church must also consider whether the state-administered local taxing
jurisdiction has the same exemption for occasional sales made by a charitable
organization. If the local taxing jurisdiction does not have the same exemption,
then local sales tax is due on all sales made by the Church. Department Form DR
1002 lists all state-administered local taxing jurisdictions and whether they have
elected to tax occasional sales by charitable entities.7 This letter does not address
the tax requirements of home rule cities and towns over which the Department has
no taxing or collection authority.
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
1

§39-26-718(1)(b)(I), C.R.S.
§39-26-718(1)(b)(II)(B), C.R.S.
3
Net proceeds are calculated by taking the total gross receipts and subtracting expenses directly
attributable to the event generating the proceeds. For more information on calculating net
proceeds, see Department Regulation §39-26-718(7)(b)(ii).
4
§§ 39-26-718(1)(b)(II)(A) and (C)
5
Department Regulation §39-26-718(7)(b)(ii)(C)
6
Department Regulation §39-26-102.4.5(2), for more information on the taxable nature of food see
also Colorado Department of Revenue FYI Sales 4: Taxable and Tax Exempt Sales of Food and
Related Items.
7
Available to view at www.colorado.gov/pacific/sites/default/files/DR1002.pdf
2

2

DR 4010A (06/11/14)

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

3

DR 4010A (06/11/14)