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

Plain-English summary

A 501(c)(3) nonprofit started a catering operation (to give the people it serves job training and work experience) and also rents out its facility for weddings, banquets, and graduations. It asked whether sales tax applies to the catering and to the facility rental. Because this is a General Information Letter, the Department gives the rules, not a binding determination.

Catering. Colorado imposes sales tax on food or drink served or furnished by caterers (§ 39-26-104(1)(e)). So catering is taxable as a starting point. But Colorado exempts occasional sales by charitable organizations — including food and drink — when all three of these are true (§ 39-26-718(1)(b)):
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 those sales do not exceed $25,000 during the calendar year.

The nonprofit said it expects to cater 15–20 events a year — which is more than 12, so on its own facts it would blow the first numeric limit and its catering sales would be taxable. (The letter states the test rather than crunching the taxpayer's numbers.)

Facility rental. Colorado sales tax applies only to the sale or lease of tangible personal property, not to the rental of real property (§ 39-26-104(1)). So renting the building itself is generally not taxable — with two exceptions. The facility rental becomes taxable if:
- the rental charge is not separately stated from the catering charge; or
- the customer is required to rent the facility in order to buy the catering.

In short: keep the room charge clearly separate from the food, and don't force customers to rent the room to get catered, or the otherwise-tax-free real-property rental gets pulled into the taxable sale.

What this means for you

Nonprofits and charitable organizations that cater or sell food

Running a catering or food operation doesn't get a blanket pass just because you're a charity. To keep food sales tax-free under the occasional-sales exemption you must stay within all three limits — fundraising purpose, ≤12 sales/year, and ≤$25,000 net for the year. Catering on a regular commercial schedule (here, 15–20 events) typically exceeds the 12-sale cap and is taxable. Track your event count and net proceeds across the whole calendar year, because the exemption is tested annually (and a related rule treats it as a cliff — see GIL 18-006).

Venues that bundle room rental with food

Real-property rental isn't taxable, but you can accidentally make it taxable by bundling. Separately state the facility charge from the catering, and don't condition catering on renting the room, so the room charge stays outside the tax.

Accountants and tax professionals

Two independent analyses: (1) caterer food/drink is taxable (§ 39-26-104(1)(e)) unless the charitable occasional-sales exemption (§ 39-26-718(1)(b)) is met in full; (2) real-property rental is outside the tax (§ 39-26-104(1)) unless not-separately-stated or required-to-purchase folds it into the taxable catering sale. This is the same separately-stated/optional theme that runs through Colorado's delivery and bundling rulings. Note this is a GIL — guidance, not a determination.

Common questions

Q: Is a charity's catering exempt from Colorado sales tax?
A: Not automatically. Catering is taxable, but a charity's food/drink sales are exempt if they're for fundraising, number 12 or fewer in the year, and net no more than $25,000. A regular catering operation usually exceeds the 12-event limit and is taxable.

Q: Is renting out the charity's hall taxable?
A: Generally no — renting real property isn't subject to Colorado sales tax. But it becomes taxable if the rental charge isn't separately stated from the catering, or if customers must rent the facility to get the catering.

Q: How do I keep the room rental tax-free?
A: State the facility charge separately from the food charge on the invoice, and don't require customers to rent the facility as a condition of buying catering.

Q: Does this letter decide my situation?
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 set their own rules — check with each.

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.

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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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