Are a supplier's transportation/delivery charges included in Colorado sales or use tax on the goods — and does billing freight on a separate invoice change the answer?
Plain-English summary
A Colorado manufacturer that buys raw goods from suppliers asked the Department to confirm two points about transportation (delivery) charges: (1) whether a supplier's separately stated transportation charge is part of the sales/use tax on the goods, and (2) whether putting the transportation charge on a separate invoice from the goods changes the result. The Department ruled the charges are not taxable here, with one exception, and that a separate freight invoice is fine.
The rule (Special Regulation 18). Colorado presumes transportation of goods between a seller and buyer is a non-taxable service. Such charges are excluded from tax when they are both (1) separable from the sale and (2) separately stated in writing. "Separable" means the transport is performed after the goods are offered for sale and the seller gives the buyer the option to use the seller's transport or an alternative (including the buyer picking the goods up). Critically, stating the charge separately is not, by itself, enough to make it separable.
Applying that to this manufacturer: its agreements let the supplier ship "by the most economical manner" (usually a common carrier the supplier hires), but suppliers generally don't require the manufacturer to use their transport, and the price of the goods doesn't change whether or not the manufacturer uses the supplier's carrier. So the transport is separable — the charges are excluded from sales/use tax. (The same conclusion applies to use tax on purchases from out-of-state vendors that don't collect Colorado tax; use tax follows the same transportation rules — Howard Electrical.)
The exception — inseparable transport. When the supplier requires the buyer to use the supplier's transportation as part of the sale, the charge is taxable. The classic examples (the Department cited Special Regulation 37 and PLR-2010-001): ready-mix concrete and extreme low-temperature liquids, which need special transport equipment only the supplier can provide — there's no realistic option to use another carrier, so the delivery is inseparable from the sale and taxed on the delivered price.
Two more points:
- Freight-in is different. Charges for shipping goods from the manufacturer/supplier to the seller (before resale) are "freight-in" and are not the kind of separable transportation charge that's excluded — those stay in the base. The Department confirmed the manufacturer's vendors' charges weren't freight-in.
- Exempt goods → delivery never taxable. If the goods themselves aren't taxable (e.g., manufacturing machinery/machine tools over $500 exempt under § 39-26-709), their transportation isn't taxable regardless of separability or separate statement.
On the separate-invoice question: if the transport charge is on a separate transportation invoice and the goods invoice price doesn't include transport, the transport charge is not included in the tax — billing it separately works. If the goods invoice already bundles the transport into the price, a separate transportation invoice counts as "separately stated" only if the invoices are detailed enough to match which transport charges go with which goods.
Because this is a private letter ruling, it is binding on the Department only for this taxpayer and these facts and cannot be relied on by anyone else.
What this means for you
Buyers and sellers shipping goods
To keep delivery charges out of the Colorado tax base, make the transport genuinely optional (let the buyer use its own or another carrier, or pick up) and state it separately — and don't change the goods' price based on who ships. Separate statement alone won't do it; the option to use another carrier is what makes the charge separable. Billing freight on a separate invoice is acceptable, as long as the goods price doesn't secretly include it.
Industries with specialized delivery (concrete, cryogenics, etc.)
If only you can deliver the product (special equipment, no realistic carrier alternative), the delivery is inseparable and taxable on the delivered price — the ready-mix concrete and low-temperature-liquid pattern. Optional standby charges after arrival can be non-taxable if segregated.
Accountants and tax professionals
Two prongs (separable and separately stated), with separability resting on the buyer's carrier option and price-neutrality — passage of title is not the test (A.D. Stores). Distinguish excluded outbound transport from taxable freight-in, and remember delivery of exempt goods is never taxable. Use tax mirrors sales tax on all of this.
Common questions
Q: Is a separately stated delivery charge taxable in Colorado?
A: Generally no, if it's also separable — meaning the buyer had the option to use its own or another carrier (or pick up) and the goods cost the same either way. Separate statement alone isn't enough; the carrier option is what matters.
Q: Can my supplier bill freight on a separate invoice and keep it untaxed?
A: Yes, as long as the goods invoice doesn't already include the freight. If the goods price bundles transport, the separate freight invoice counts only if the documents are detailed enough to match charges to goods.
Q: When is delivery taxable?
A: When the supplier requires you to use its transportation as part of the sale — typically because only the supplier can deliver the product (ready-mix concrete, low-temperature liquids). Then it's inseparable and taxed on the delivered price.
Q: What about freight to get the goods to the seller, or delivery of tax-exempt goods?
A: "Freight-in" (shipping to the seller before resale) stays in the tax base. Delivery of exempt goods is never taxable, regardless of how it's billed.
Citations and references
Statutes, rules, and cases:
- § 39-26-104(1)(a), C.R.S. (sales tax); § 39-26-202(1)(a), C.R.S. (use tax)
- § 39-26-709, C.R.S. (exempt manufacturing machinery/machine tools over $500)
- Special Regulation 18 (Transportation Services); Special Regulation 37 (Ready Mix Concrete)
- A.D. Stores v. Dep't of Revenue, 19 P.3d 680 (Colo. 2001) (separability; title not dispositive)
- Howard Electrical & Mechanical v. Colo. Dep't of Revenue, 771 P.2d 475 (Colo. 1989) (use tax supplements sales tax)
- PLR-2010-001 (low-temperature-liquid transport taxable when no carrier option)
Related rulings
- [[gil-12-007-transportation-charges]] — SR-18 separability/separate-statement; freight-in
- [[plr-11-004-private-letter-ruling-re-direct-mail-advertising]] — fulfillment/delivery follow non-taxable goods
- [[gil-12-014-full-service-truck-wash-and-supplies]] — freight factors (FYI Sales 29)
Source
- Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
- Original PDF: https://tax.colorado.gov/sites/tax/files/documents/PLR-10-002.pdf
Original ruling text
Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]
PLR-2010-002
March 23, 2010
Attn:XXXXXXXXXXXX
xxxxxxxxxxxxxxxxx
Re: Private Letter Ruling
DearXXXXXXXXXXXXX,
You submitted on behalf of XXXXXXXXXXXXXXXXX ("Company") a request for a
private letter ruling to the Colorado Department of Revenue ("Department") pursuant
to Regulation 24-35-103.5. This letter is the Department's private letter ruling.
Issues
- Is a seller's separately stated charge for transportation included in the
calculation of sales or use tax due on the sale, use, storage, or consumption
of goods purchased by the Company from the seller. - Is the transportation charge described in question 1 included in the tax
calculation if the seller separately states the transportation charge on an
invoice separate from the invoice for the sale of goods?
Conclusions - Transportation charges are not included in the calculation of sales or use tax
under the circumstance described in the ruling request, except when the
supplier requires Company to purchase supplier's transportation service as
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part of the sale of taxable goods. - Transportation charges set forth on an invoice separate from the invoice
reflecting the sale of taxable goods are not included in the calculation of sales
or use tax.
Background
Company is a manufacturer of XXXXXXXX or XXXXXXXXXXX. Its manufacturing
facility is located in Colorado. Company purchases tangible personal property
("goods") from suppliers. Company's agreement with most suppliers provides that
the supplier will ship the goods by the most economical manner. Most suppliers use
a common carrier to ship the goods and most do not require Company to use the
suppliers' transportation services. However, in rare cases, a supplier will require
Company to use the supplier's transportation services.
Discussion
Colorado imposes sales and use tax on the sale, use, storage, and consumption of
tangible personal property in Colorado. §§39-26-104(1)(a) and 202(1)(a), C.R.S. Tax
is calculated on the purchase price paid by the consumer. §39-26-104(1)(a), C.R.S.
In cases where the transaction involves the sale of both a taxable good and non
taxable service, a separately stated charge for the service is not included in the tax
calculation unless the sale of the service is inseparable from the sale of goods. AD.
Stores v. Department of Revenue, (Colo. 2001). Examples of "inseparable"
transportation services include sales of ready mix concrete or of extreme low
temperature liquids, both of which require special transportation equipment which
only the supplier can provide. See, Department Special Regulation 37 (Ready Mix
Concrete), which states, "[r]eady-mix concrete is taxable on the delivered price, which
includes minimum load and transportation charges. Standby charges charged after
arrival at the destination are not taxable if segregated on the customer's invoice.n
See, also, Department PLR-2010-001 (charges for transportation of low temperature
liquids taxable when buyer does not have option to acquire goods without the
transportation charge).
This bundling of a taxable good and with a non-taxable service often arises in the
context of a charge for transportation to move goods from the retailer to the buyer.
The department presumes transportation services are separable from the sale of
goods, regardless of whether title to the goods has passed from the buyer to seller at
the time the transportation service is rendered.1 Special Regulation 18
(Transportation Services) sets forth the following rules governing transportation
charges
1) The transportation of tangible personal property between a retailer and
purchaser is a service presumed to be not subject to sales or use tax.
Transportation charges are not taxable if they are both (1) separable from the
sales transaction, and (2) stated separately on a written invoice or contract.
1 Some states determine the taxability of transportation services by asking whether the service
was rendered before or after title to goods was transferred to the buyer. In those states,
transportation services rendered after title has moved to the buyer are not taxable. See, e.g.,
Alabama Department of Revenue, S. 84-172, 05/01/1986. In AD Stores, supra, the Colorado
supreme court held that passage of title does not determine whether a service is separable from
the sale of taxable goods.
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a) u Transportation charges" include carrying, handling, delivery, mileage,
freight, postage, shipping, trip charges, stand-by, and other similar
charges or fees.
b) Separable charges. Transportation charges are separable from the
sales transaction if they are performed after the taxable property or
service is offered for sale and the seller allows the purchaser the option
either to use the seller's transportation services or use alternative
transportation services (including but not limited to the purchaser picking
up the property at the seller's location). The fact that transportation
charges are stated separately does not, in and of itself, mean the charges
are a separable charge.
c) Stated Separately. Transportation charges will be regarded as
"separately stated" only if they are set forth separately in a written sales
contract, retailer's invoice, or other written document issued in connection
with the sale.
d) Intermediate or "Freight in" charges. Transportation charges incurred in
connection with transporting tangible personal property from the place of
production or the manufacturer to the eller or to the seller's agent or
representative, or to anyone else acting in the seller's behalf, either
directly or through a chain of wholesalers or jobbers or other middlemen,
are deemed "freight -in" charges and are not a transportation charge
exempt from tax.
e) Overstated Transportation Charges. The amount of transportation
charges excluded from the calculation of tax shall not materially exceed
the seller's costs of the transportation.
At the outset, we note that transportation charges are never taxable if the sale, use,
storage, or consumption of goods to which the transportation charges apply are not,
themselves, subject to sales or use tax. For example, a manufacturer may purchase
exempt from sales and use tax machinery and machine tools used in Colorado
directly and predominantly in manufacturing and whose price exceeds $500. See,
§39-26-709, C.R.S. Charges for transportation of exempt machinery or machine
tools are not taxable regardless of whether the transportation service is separable
from the sale or use of the exempt goods or whether the charge for the transportation
is separately stated on the seller's invoice.
Company's agreement with vendors provides that the Company and seller will use
the most economical transportation service. In some cases, this means the vendor
uses its own transportation service; but, in most cases, goods are shipped by the
vendor on a common carrier hired by the vendor. Company represents that, except
in rare cases, vendors do not require Company to use the vendors' own
transportation service. The fact that the vendor typically chooses the transportation
service to be used does not mean that Company did not have the option to select its
own transportation service. Moreover, no vendor charges more for goods if Company
uses either its own transportation or a third party transportation service. Based on
Company's representations, we conclude that the transportation charges of
Company's vendors are separable from the sale of goods purchased by Company.
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Company represents that vendors' transportation services are not "freight-in" service
charge. Freight-in charges are separately stated charges for shipping goods from the
manufacturer or supplier to the seller, vendor, vendor's agent, or to an intermediate
wholesale jobber. See, Special Regulation 18, quoted above.
In some instances, Company purchases goods from out-of-state vendors who do not
collect Colorado sales tax. For those transactions, Company states that it pays
applicable use taxes. In general, use tax is a supplemental tax that places the same
tax burden on a transaction that would have applied had the transaction been subject
to sales tax. More specifically, rules governing the application of use tax to charges
for transportation services are the same as those that apply to sales tax.2 For
example, transportation charges by an out-of-state retailer, who does not collect
Colorado sales, are not included in Company's use tax calculation if Company had
the option to use a transportation service other than the vendor's (i.e., either using
Company's own vehicle or hiring a common carrier), vendor's price for the goods
does not vary depending on whether Company uses the vendor's transportation
service, and vendor separately states the transportation charge from the purchase
price for the taxable goods.
Finally, you ask whether a charge is separately stated within the meaning of the
Special Regulation 18 if the charge is separately stated on an invoice ("transportation
invoice") that is separate from the invoice for the purchase of the goods ("goods
invoice"). We presume in these cases that the price for the goods set forth on the
goods invoice do not include the transportation charge. In such cases, transportation
charges separately stated on a transportation invoice are not included in the
calculation of sales or use tax for the taxable goods.
If the price for goods listed in the goods invoice includes the charge for transportation
and the invoice does not separately state those charges, then the separately stated
charges for transportation on the transportation invoice is separately stated for
purposes of Special Regulation 18 if the invoices are sufficiently detailed to determine
which transportation charges on the transportation invoice apply to the bundled price
of the goods set forth on the goods invoice.
Miscellaneous
This ruling is premised on the assumption that the Company has completely and
accurately disclosed all material facts. The department reserves the right, among
others, to independently evaluate the Company's representations. This ruling is null
and void if any such representation is incorrect and has a material bearing on the
conclusions reached in this ruling. This ruling is subject to modification or revocation
in accordance to Department Regulation 24-35-103.5. Please note that the
Department does not administer the sales or use tax of home-rule cities. We urge
2 Howard Electrical and Mechanical, Inc. v. Colorado Department of Revenue, 771 P2d 475 (Colo.
1989) ("[U]se tax is supplementary to the sales tax rather than separate from it. )
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you to consult with your home-rule city regarding the application of its sales and use
taxes.
Enclosed is a redacted version of this ruling. Pursuant to statute and regulation, this
redacted version of the ruling will be made public within 60 days of the date of this
letter. Please let me know in writing within that 60 day period whether you have any
suggestions or concerns about this redacted version of the ruling.
Sincerely,
Office of Tax Policy
Colorado Department of Revenue
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