Does labeling a gift-wrapping charge as a service fee make it exempt from Colorado sales tax?

Plain-English summary

Colorado's Department of Revenue said a separately labeled gift-wrapping service fee is generally subject to sales tax when the customer is paying to obtain decorative packaging for a product.

The wrapping paper and other finished packaging are tangible personal property. The retailer's labor in assembling or applying them does not make the transaction a nontaxable service, because the customer's goal is to receive that packaging.

This is a general information letter. The Department says it is not bound by the guidance and does not make a specific determination for the requester. It also does not address tax administered by self-collected home-rule cities and counties.

What this means for you

Retailers and gift shops

Calling a charge a "service fee" does not determine its tax treatment. Under this guidance, a customer who pays for decorative packaging is buying taxable tangible property.

Accountants

Separate this described retail wrapping charge from other arrangements with different facts. The letter gives the Department's general view rather than a binding ruling.

Common questions

Q: Is the charge nontaxable because an employee does the wrapping? A: No. The Department says the labor does not transform the customer's purchase of decorative packaging into a service.

Q: Does changing the invoice label to a service fee help? A: No. The letter looks at what the customer receives.

Q: Does the letter bind the Department or settle home-rule tax? A: No on both points. It is nonbinding and excludes self-collected home-rule city and county taxes.

Citations and references

• § 39-26-104(1)(a), C.R.S. (sales tax on tangible property).
• 1 CCR 201-4, Reg. 26-102.12; 1 CCR 201-5, Special Rule 40 (rules cited by the letter).

Source

• Official index: Colorado All Letter Rulings.
• Original PDF: GIL-19-003.pdf, dated December 27, 2019.
• The opening identifies it as GIL-19-003; the second-page running header reads "GIL-19-002." The source does not explain the mismatch.

Original ruling text

Physical Address: Mailing Address:
Office of Tax Policy Analysis Office of Tax Policy Analysis, Room 607 1375 Sherman Street, Room 607 P.O. Box 17087
Denver, CO 80203
Denver, CO 80217-0087

GIL-19-003

December 27, 2019

XXXXXXXXXXX
XXXXXXXXXXX
XXXXXXXXXXX
XXXXXXXXXXX

Re: Colorado Sales & Use Tax Applicability to Gift Wrapping Services

Dear XXXXXXXXXXX,

You submitted a request for guidance regarding the applicability of sales & use tax on gift wrapping services.

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 your inquiry as a request for 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 you would like the Department to issue a private letter ruling on the issue raised here, you may submit a request and pay the fee in compliance with Department Rule 1 CCR 201–1, 24–35–103.5.

Discussion

Colorado levies sales tax on the retail sale of tangible personal property1. The Department believes that, in general, the customer’s purpose in paying for gift wrapping is to obtain decorative packaging for the product the customer has purchased. There is no question that this decorative packaging is tangible personal property to which Colorado sales tax applies.

That the retailer may call it a “gift wrapping service fee” and expend some labor in manipulating the materials that create the final packaging does not transform the sale into the sale of a service because the customer’s ultimate goal in paying the fee is to obtain tangible personal property (the decorative packaging) that covers or otherwise conceals the product purchased2.

1
§ 39-26-104(1)(a), C.R.S.
2
See 1 Code Colo. Regs. 201-4, Regulation 26-102.12; 1 Code Colo. Regs. 201-5, SR-40.

Page 2

GIL-19-002
Page 2

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 self-collected home-rule cities and home-rule counties. You may wish to consult with those local governments that administer their own sales or use taxes about the applicability of those taxes. Visit our website at www.colorado.gov/tax for more information about state and local sales taxes.

Sincerely,

Office of Tax Policy Analysis
Colorado Department of Revenue