Does a charity owe sales tax on its catering sales and on renting out its facility?

Plain-English summary

A nonprofit asked about sales tax on catering and renting its facility. The Department explained that food or drink served by caterers is taxable and described an occasional-sales exemption for charitable organizations: fundraising purpose, no more than 12 sales in a calendar year, and net proceeds no more than $25,000. The nonprofit reported an expectation of 15 to 20 catering events, but the Department did not apply the test to those facts and expressly made no specific determination.

The letter separately discusses facility rental. Renting real property is outside the general tax on tangible personal property, subject to the letter's discussion of separate statement and whether the customer must rent the facility to obtain the catering. The GIL gives rules, not a determination about the nonprofit's own transactions.

What this means for you

Charitable caterers

Review each requirement of the occasional-sales exemption and count qualifying sales across the calendar year. The GIL does not find that this nonprofit's catering is taxable or exempt, even though it reports an expected event count.

Facility rental

The letter discusses separately stated rental charges and whether the facility rental is required as a condition of catering. It does not decide a particular invoice or contract.

Common questions

Q: Did the Department decide that the nonprofit's 15 to 20 planned events are taxable?
A: No. It stated the three-part charitable occasional-sales test and expressly made no specific determination on the issues raised.

Q: What are the occasional-sales conditions stated in the GIL?
A: The sales must be for fundraising, number no more than 12 during the calendar year, and yield net proceeds of no more than $25,000 for the year.

Q: Can the letter be relied on for another charity's sales?
A: No. It is general, nonbinding guidance and does not determine specific transactions.

Citations and references

Statutes and rules:

• § 39-26-104(1)(e), C.R.S. (sales tax on food/drink served or furnished by caterers)
• § 39-26-718(1)(b), C.R.S. (occasional-sales exemption for charitable organizations: fundraising + ≤12 sales/year + ≤$25,000 net)
• § 39-26-104(1), C.R.S. (sales tax on tangible personal property, not on real-property rental)
• 1 CCR 201-4, Reg. 39-26-718 and Reg. 39-26-102(4.5); Special Regulation Sales 13 and 24
• Related: GIL 18-006 (charity occasional-sales exemption; retroactive cliff if a condition fails)

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-18-014.pdf

Original ruling text

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

GIL 18-014
December 11, 2018
XXXXXX
Attn: XXXXXX
XXXXXX
XXXXXX
Re: Sales tax on catering by charitable organization
Dear XXXXXX,
You submitted a request for guidance on behalf of XXXXXX (“Company”) regarding the applicability of sales tax to rentals of Company’s facility and charges for catering. 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 Does sales tax apply to the rental of a facility owned by a charitable organization and to sales of catering services by the organization?

Background
Company is a private non-profit 501(c)(3) corporation that provides services and support to individuals with XXXXXX. In an effort to provide additional training and employment opportunities for individuals in their services, Company began operating catering services to the local community. Company rents its facility and offers catering services for weddings, banquets, graduation, etc. Company anticipates catering between 15 and 20 events each year. Discussion Colorado imposes sales tax on the sale of food or drink served or furnished by caterers.1 However, Colorado exempts occasional sales by charitable organizations, including sales of food and drink, if the sales satisfy each of the following criteria:

1. The sales are for fundraising purposes,
2. There are no more than 12 occasional sales in the calendar year, and
3. The net proceeds from such sales do not exceed $25,000 during the calendar
   year.2
   Colorado does not impose sales tax on the rental of real property, such as the facility.3 However, the rental of a facility is subject to sales tax if (1) the charge for the rental is not separately stated from the charge for catering, or (2) the customer is required to rent the facility in order to purchase the catering service. 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 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

1 § 39-26-104(1)(e), C.R.S.

2 § 39-26-718(1)(b), C.R.S.

See, also, regulations 39-26-718, (39-)26-102(4.5) and Special Regulation Sales 13 and 24 3 Sales tax applies only to the sale or lease of tangible personal property. § 39-26-104(1), C.R.S.

2

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