When a vendor or caterer sells alcoholic beverages to a Colorado state university for an official function, is that sale exempt from sales tax under the government-purchase exemption?

Plain-English summary

The Colorado Department of Revenue addressed whether alcoholic beverages sold to a state university for official functions are exempt from sales tax. The guidance: yes — alcohol gets the same treatment as anything else under the government-purchase exemption.

Normally, Colorado taxes the amount paid for prepared food and drink served by a dining establishment — and the plain meaning of "drink" includes alcoholic beverages, so catered or hotel-served alcohol is ordinarily taxable. But Colorado exempts all sales to governmental entities — the U.S. government, the state of Colorado, and its departments, institutions, and political subdivisions — when the purchase is made in the entity's governmental capacity. State institutions of higher education are constitutionally declared state institutions, so they qualify as governmental entities.

The key point: alcohol is not specially excluded from the government-purchase exemption. Neither the statute nor the Department's rules carve out alcohol, so it's treated like any other purchase. If a sale to a qualifying governmental entity is exempt, the alcohol included in that sale is exempt too.

The exemption isn't automatic, though — all four conditions must be met:

1. The purchaser is a governmental entity;
2. It is acting only in its governmental capacity;
3. The purchase is made using a prescribed government form or purchase order; and
4. The governmental entity pays directly with governmental funds.

So a caterer or vendor selling alcohol to a state university for an official, government-capacity function — paid directly by the university with a government PO and government funds — can treat the alcohol as exempt, alongside the rest of the order.

What this means for you

Caterers, hotels, and liquor vendors serving public institutions

Don't assume alcohol is always taxable. When you sell to a qualifying governmental entity like a state university for an official function, the alcohol rides along with the rest of the exempt sale — but only if all four conditions hold. The make-or-break facts are usually procedural: the purchase must run through a government purchase order or prescribed form and be paid directly with government funds (not reimbursed to an individual). Keep the exemption documentation; a sale paid on an employee's personal card and later reimbursed generally won't qualify.

State agencies and public universities

Buying alcohol for official functions can be exempt, but only when the institution buys in its governmental capacity, on a government form/PO, with direct payment from government funds. Personal purchases later reimbursed, or purchases outside the institution's governmental capacity, fall outside the exemption.

Accountants and tax professionals

The analysis pairs the taxability of prepared food and drink (§ 39-26-104(1)(e)) with the governmental-purchase exemption (§ 39-26-704(1); 1 CCR 201-4, Rule 39-26-704-1). The holding is simply that alcohol isn't excluded from that exemption — so the four-part test and the documentation rule (1 CCR 201-4, Rule 39-26-105-3) control. Because this is a GIL, it's guidance, not a binding determination. Watch the home-rule-city caveat below.

Common questions

Q: Is alcohol sold to a state university taxable in Colorado?
A: Not when the sale qualifies for the government-purchase exemption. Alcohol isn't carved out of that exemption, so if the sale to the governmental entity is exempt, the alcohol is exempt too.

Q: What has to be true for the exemption to apply?
A: All four conditions: the buyer is a governmental entity, acting only in its governmental capacity, purchasing with a prescribed government form or purchase order, and paying directly with governmental funds.

Q: Does a state college count as a governmental entity?
A: Yes. State institutions of higher education are constitutionally declared state institutions, so they qualify for the government-purchase exemption.

Q: What commonly disqualifies the exemption?
A: Failing the procedural conditions — for example, an employee paying personally and getting reimbursed, no government purchase order or form, or a purchase not made in the entity's governmental capacity.

Q: Can I rely on this letter for my business?
A: Not as binding authority. A General Information Letter is general guidance only and is not binding on the Department; it reflects the good-faith opinion of Department personnel and makes no specific determination. It also doesn't address self-collected home-rule city taxes.

Citations and references

Statutes and rules:
- § 39-26-104(1)(e), C.R.S. (sales tax on prepared food and drink served by a dining establishment, including catering and hotel dining)
- § 39-26-704(1), C.R.S. (exemption for sales to governmental entities in their governmental capacity)
- 1 CCR 201-4, Rule 39-26-704-1 (governmental purchase exemption — four conditions)
- 1 CCR 201-4, Rule 39-26-105-3 (documenting exempt sales)
- Colo. Const. art. VIII, § 5 (state institutions of higher education)
- 1 CCR 201-1, Rule 24-35-103.5 (general information letter and private letter ruling procedure)

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-22-005.pdf

Original ruling text

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

GIL 22-005
October 7, 2022
XXXXXXXXXXXXX
XXXXXXXXXXXXX
XXXXXXXXXXXXX
XXXXXXXXXXXXX
Via Electronic Mail: XXXXXXXXXXXXX
Re: Sales of alcoholic beverages to state institutions of higher education for official functions.
Dear XXXXXXXXX:
You submitted a request for a general information letter regarding whether sales of alcoholic
beverages to a governmental entity are subject to 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, and requires payment of a fee. For more information about
general information letters and private letter rulings, please see 1 CCR 201-1, Rule 24-35103.5.
Issue
Whether sales of alcoholic beverages to state institutions of higher education for official
functions are exempt from sales tax.
Discussion
Unless a specific exemption applies, Colorado imposes a sales tax on the amount paid for
prepared food and drink that is served or furnished by a dining establishment, which includes
catering and hotel dining.1 The plain meaning of the term “drink” includes alcoholic beverages.
However, all sales made to the United States government and the state of Colorado, including
its departments, institutions, and political subdivisions (“governmental entity”) are exempt from
sales tax when the purchase is made in the governmental entity’s governmental capacity.2
To qualify for this sales tax exemption, the following four conditions must be met: 1) The
purchaser must be a governmental entity; 2) The purchaser must be acting only in its
governmental capacity; 3) The purchase must be made using a prescribed government form or
1 Section 39-26-104(1)(e), C.R.S., 1 CCR 201-4, Rule 39-26-102(4.5)(2)(c).
2 Section 39-26-704(1), C.R.S.; 1 CCR 201-4, Rule 39-26-704–1.

GIL 22-005
October 7, 2022
Page 2

purchase order; and 4) The governmental entity must pay for the purchase directly with
governmental funds.3 Qualifying governmental entities include the United States government,
the state of Colorado, departments and institutions of the state, and political subdivisions of the
state.4 A number of educational institutions are constitutionally declared to be state institutions
of higher education.5
As noted above, the governmental purchase exemption applies to all sales. For purposes of this
exemption, alcohol is treated the same as any other purchase as neither the statute, nor the
Department’s rules, specifically exclude sales of alcohol from the exemption for governmental
purchases. In other words, if some portions of a sale are tax exempt under the governmental
purchase exemption, then sales of alcohol included in the sale are also tax exempt.
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. 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 tax.colorado.gov for more information about
state and local sales taxes.
Thank you for your request.
Sincerely,
Office of Tax Policy
Colorado Department of Revenue

3 Section 39-26-704(1), C.R.S.; 1 CCR 201-4, Rule 39-26-704–1. See also 1 CCR 201-4, Rule 39-26-105–3

(regarding documenting exempt sales).
4 Section 39-26-704(1), C.R.S.
5 CO. Const. art. VIII, § 5.