When does Colorado use tax apply to inventory used for promotional giveaways, and what sales-tax duties can a marketplace seller have when inventory is stored in Colorado?

Plain-English summary

Colorado generally imposes use tax when tax-free wholesale inventory is taken out of resale inventory and used for a promotion or giveaway. If the withdrawal happens in Colorado, the use tax arises at withdrawal, even when the item will be shipped to a recipient in another state. The business that withdrew the item is treated as the user-consumer, and the tax is calculated on what it paid to acquire the item.

If inventory is withdrawn outside Colorado and then brought into Colorado for a promotion or giveaway, Colorado consumer use tax generally applies when the property is stored, used, or consumed in Colorado.

A business may claim credit for use tax legally paid to another state or its subdivisions. The credit is applied first against Colorado state use tax and then against subdivision tax. If the other-state tax is lower, Colorado can collect the difference; if it is equal or higher, no additional state tax is due, though subdivision tax may remain. No credit is allowed for tax that was not legally due to the other state.

On marketplace nexus, the letter lays out the governing rules but does not make a specific factual determination. A retailer can be doing business in Colorado by maintaining a warehouse or storage place directly or indirectly. Marketplace sellers are retailers, but they generally do not carry retailer duties for sales handled through a marketplace facilitator. If they also sell through their own store or website, they have the ordinary licensing, collection, filing, and recordkeeping duties for those direct sales when nexus rules apply.

What this means for you

Businesses giving away inventory

Treat a promotional withdrawal as a taxable use, not as a resale. For an item withdrawn in Colorado, remit use tax based on your acquisition cost even if you ship the free item elsewhere.

Businesses moving promotional items into Colorado

Property bought or withdrawn outside Colorado can trigger Colorado consumer use tax when brought into the state for use. Preserve records of any tax legally paid elsewhere so the available credit can be calculated correctly.

Marketplace sellers

Inventory stored in Colorado can be relevant to physical nexus because the statutory place-of-business concept includes warehouses and storage places maintained directly or indirectly. This GIL does not decide whether a particular facilitator arrangement satisfies that test, so sellers should not treat the letter as a binding answer about their own inventory arrangement.

Accountants and tax professionals

Separate facilitated sales from direct sales. The marketplace facilitator generally bears retailer duties for sales through the marketplace, while the seller remains responsible for qualifying sales made through its own store, website, or other channels.

Common questions

Q: Is inventory withdrawn in Colorado for a free giveaway subject to use tax? A: Generally yes. The withdrawal converts property bought for resale into property used by the purchaser, and use tax is based on the purchaser’s acquisition cost.

Q: What if the giveaway item is shipped to another state? A: The letter says Colorado use tax applies when the wholesale inventory is withdrawn in Colorado, even if the promotional item is then shipped elsewhere.

Q: What if inventory is withdrawn elsewhere and brought into Colorado? A: Colorado consumer use tax generally applies when the property is brought into Colorado for storage, use, or consumption.

Q: Can the business claim credit for tax paid to another state? A: Yes, but only for tax that was legally imposed and paid. The credit may eliminate or reduce Colorado state use tax, while subdivision tax can still remain.

Q: Does Colorado inventory automatically make a marketplace seller liable for every facilitated sale? A: The letter does not make that specific determination. It explains that Colorado storage can be a place of business, but also that a marketplace seller generally lacks retailer duties for sales handled through a facilitator.

Q: What about the seller’s own website sales?
A: For sales outside the marketplace, the seller has the same licensing, collection, remittance, filing, and recordkeeping duties as another retailer when it is doing business in Colorado.

Q: Is this GIL binding?
A: No. It is general guidance and expressly makes no specific determination.

Citations and references

• §§ 39-26-202(1)(b) and 39-26-201(3), C.R.S. (use tax and storage)
• § 39-26-713(2)(f), C.R.S.; § 24-60-1301, Article V, C.R.S. (other-state tax credit)
• §§ 39-26-102(3), (8), C.R.S. (doing business and retailer)
• § 39-26-105(1.5)(c), C.R.S. (marketplace-seller duties)
• 1 CCR 201-4, Rules 39-26-202, 39-26-713-3, and 39-26-713-4
• 1 CCR 201-5, Special Rules 21 and 44
• International Business Machines Corp. v. Charnes, 601 P.2d 622, 625 (Colo. 1979)
• 1 CCR 201-1, Rule 24-35-103.5 (GIL/PLR procedure)

Source

• Landing page: Colorado Sales & Use Tax Letter Rulings
• Original PDF: GIL-26-003.pdf

Original ruling text

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

GIL 26-003
June 25, 2026
XXXXXXXXX
XXXXXXXXX
XXXXXXXXX
XXXXXXXXX
Via Electronic Mail: XXXXXXXXX
Re: Taxability of Inventory for Promotional Giveaways and Nexus for Marketplace Sellers Dear XXXXXXXXX: You submitted a request for a general information letter regarding use tax obligations and physical nexus. 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 24-35-103.5. Issues

1. Whether inventory withdrawn from within Colorado and shipped to another state for
   promotional or giveaway purposes is subject to use tax in Colorado.
2. Whether inventory withdrawn from another state and shipped into Colorado for
   promotional or giveaway purposes is subject to use tax in Colorado.
3. Whether Colorado allows a credit for use tax paid legally to another state that the
   inventory was shipped to or withdrawn from.
4. Whether a marketplace seller is doing business in Colorado if the marketplace seller
   owns inventory that is stored and controlled within Colorado by a third-party marketplace facilitator. Discussion Colorado imposes a sales tax on all sales of tangible personal property purchased at retail.1 Additionally, Colorado imposes a use tax upon the privilege of storing, using, or consuming tangible personal property within the state.2 “Storage” or “storing” means any keeping of, retention of, or exercise of control over tangible personal property in Colorado.3 Tangible 1 2 3

Section 39-26-104(1)(a), C.R.S.
Section 39-26-202(1)(b), C.R.S.
Section 39-26-201(3), C.R.S.

GIL 26-003
June 25, 2026
Page 2
personal property that is purchased tax-exempt as a wholesale purchase and is later pulled from inventory, used, or made available for use by the purchaser is subject to the use tax.4 Use tax is imposed when property is used or made available for use by the purchaser after taking possession of the property, even if such use is temporary.5 Use tax applies regardless of the manner in which the purchaser uses the item withdrawn from inventory, including to be used as promotional prizes or gifts.6 When tangible personal property previously purchased at wholesale is withdrawn from inventory in Colorado for promotional or giveaway purposes for which no valuable consideration is received from the recipient, that tangible personal property is subject to Colorado use tax at the time of withdrawal.7 The purchaser of such tangible personal property is deemed to be the userconsumer of the property and is responsible for remitting the use tax directly to the Department if the purchaser did not pay sales tax at the time of purchase.8 The use tax is calculated on the purchase price the retailer paid to acquire the item.9 If a person, business, or other legal entity purchases taxable property outside of Colorado and brings that property into Colorado for use in this state, the property is subject to Colorado consumer use tax.10 However, a taxpayer may claim a credit against the Colorado use tax due for any legally imposed use tax previously paid to another state.11 These rules apply whether the property brought into the state was purchased at retail outside the state or purchased at wholesale and pulled from inventory outside the state. Credits for tax paid to another state and any subdivision thereof are applied first to state-level use tax owed and then to any subdivision, such as a special district, that imposes a use tax.12 If the use tax paid to another state and any subdivision thereof is less than what is owed to Colorado, then the taxpayer would owe additional use tax to Colorado.13 If the use tax paid to another state and any subdivision thereof is equal to or greater than that owed to Colorado, then the taxpayer would not owe additional use tax to the state but may still owe use tax to a subdivision.14 Credit is not allowed if the tax paid to the other state was not legally due under the laws of the other state.15 Every retailer doing business in this state is required to obtain a sales tax license and collect sales tax on any retail sale of tangible personal property or taxable service made in Colorado.16 A retailer is doing business in Colorado and subject to all sales tax licensing and collection requirements if the retailer maintains any place of business in Colorado directly, indirectly, or by 4

See Int’l Business Machines Corp. v. Charnes, 601 P.2d 622, 625 (Colo. 1979) (explaining that wholesale transactions were transformed into retail transactions upon the company's ultimate election to use the items purchased in its own business operations rather than reselling them). 5 1 CCR 201-4, Rule 39-26-202, paragraph (3). 6 Id.; 1 CCR 201-5, Special Rule 21. See also 1 CCR 201-4, Rule 39-26-718, paragraph (6)(b) (explaining that a donor who withdraws an item from inventory and donates it to a charitable organization is liable for use tax upon the withdrawal). 7 1 CCR 201-5, Special Rule 21. 8 Id. 9 1 CCR 201-4, Rule 39-26-713-3; 1 CCR 201-5, Special Rule 21. 10 Section 39-26-202(1)(b), C.R.S. 11 Sections 39-26-713(2)(f) and 24-60-1301(Article V), C.R.S. 12 Section 24-60-1301(Article V), C.R.S.; 1 CCR 201–4, Rule 39-26-713-4. 13 Section 39-26-713(2)(f), C.R.S. 14 Section 24-60-1301(Article V), C.R.S.; 1 CCR 201–4, Rule 39-26-713-4. 15 1 CCR 201-4, Rule 39-26-713-4. 16 Sections 39-26-103(1)(a), 39-26-105(1), and 39-26-106(2)(a), C.R.S.

GIL 26-003
June 25, 2026
Page 3
a subsidiary. Such a place of business may include an office, distribution facility, salesroom, warehouse, storage place, or home office of a Colorado resident employee.17 A retailer may be doing business in Colorado even if that retailer maintains no place of business in the state if the retailer solicits business and receives orders from Colorado residents by any means whatsoever.18 Any retailer who does not maintain a place of business in Colorado is exempted from state sales tax licensing and collection requirements if the retail sales of tangible personal property, commodities, and/or services made annually by the retailer into Colorado in both the current and previous calendar years are less than $100,000.19 Marketplace facilitators and marketplace sellers are types of retailers.20 A marketplace facilitator is doing business in Colorado if they either maintain a place of business in Colorado or their retail sales into the state exceed $100,000 in the current or previous calendar year.21 Marketplace facilitators must include all sales made by marketplace sellers in and through its marketplace in the calculation of the economic nexus threshold.22 Even though they may be doing business in Colorado, a marketplace seller does not have the rights, obligations, and liabilities of a retailer with respect to sales facilitated by a marketplace facilitator in or through a marketplace.23 However, if the marketplace seller also offers tangible personal property, commodities, or services for sale through other means—such as their own store, or on their own website—the marketplace seller is subject to all of the same licensing, collection, remittance, filing, and recordkeeping requirements as any other retailer with respect to those sales.24 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

17

Section 39-26-102(3)(a), C.R.S.
Id. at (3)(b).
19
Id. at (3)(c).
20
Section 39-26-102(8), C.R.S.
21
Section 39-26-102(3)(c) and (8), C.R.S.
22
Section 39-26-102(8), C.R.S.; 1 CCR 201-5, Special Rule 44, paragraph (3)(b). 23 Section 39-26-105(1.5)(c), C.R.S.; 1 CCR 201-5, Special Rule 44, paragraph (4)(a). 24 See 1 CCR 201-5, Special Rule 44, paragraph (4)(b)(ii). 18