Are welding gases (acetylene, oxygen, argon, CO2) and welding equipment, attachments, and tools exempt from Colorado sales tax when sold to a manufacturer whose welding is part of its manufacturing process?

Plain-English summary

A company that sells industrial, medical, and specialty gases plus welding machinery, tools, parts, and attachments to Colorado manufacturers asked whether four things were exempt from sales tax: (1) welding gases that produce energy, (2) inert shielding gases that don't produce energy, (3) welders and related machinery over $500, and (4) welding attachments, parts, and tools. The Department issued a binding private letter ruling and the answer is mostly taxable, with one exemption.

The gases split on whether they are an energy source. Colorado treats sales of "electricity, coal, gas, fuel oil, steam, coke or nuclear fuel" for use in manufacturing and other industrial uses as exempt wholesale sales (§ 39-26-102(21)(a)). Because the statute doesn't define "gas," the Department read it in context — every other item listed is a source of energy — so "gas" means a fuel source.
- Acetylene is a "gas" under this exemption because it is an energy source; acetylene used in manufacturing or metal-cutting is exempt from state sales tax (some local tax may still apply).
- Oxygen is not exempt — it isn't an energy source but a catalyst for combustion.
- Inert and semi-inert shielding gases (argon, helium, carbon dioxide) are not exempt — they create a clean welding environment but aren't energy sources, so they aren't "fuel."

Two limits on the fuel exemption: the gas must be used in an enumerated industry (manufacturing, construction, mining, agriculture, other industrial uses) — acetylene sold by a hobby store doesn't qualify — and the exemption was suspended for industrial fuel from March 10, 2010 to July 1, 2012 (§ 39-26-102(21)(b)).

The equipment is not "machinery." Colorado exempts machinery and machine tools over $500 used directly and predominantly in manufacturing (§ 39-26-709(1)(a)). But "machinery" means "any apparatus consisting of interrelated parts" with a real "degree of complexity" — a hydraulic press qualifies; a lug wrench or hand saw doesn't. A hand-held acetylene torch is a hand tool, not machinery (the Department draws the same hand-tool line in the cleanroom exemption, FYI Sales 73). Complex welding machines (e.g., longitudinal/circumferential welders for storage tanks) might qualify, but the ordinary hand-held torch/tank/regulator setup does not. The hand torches also are not "machine tools" — that term covers items used in conjunction with machinery (jigs, molds, patterns; FYI Sales 53), and hand torches aren't. So the welders' attachments, parts, and tools (spool guns, TIG torches/coolers, regulators, flowmeters, flash-back arrestors) are taxable, with the $500 threshold never reached because they aren't exempt machinery in the first place.

What this means for you

Welding-supply and industrial-gas sellers

Don't treat all "welding gas" the same. Acetylene for industrial/manufacturing use is exempt (energy source); oxygen and shielding gases (argon, helium, CO2) are taxable. And the use matters — the buyer must be in manufacturing, construction, mining, agriculture, or another industrial use; a hobbyist purchase is taxable. Watch the historical suspension window (3/10/2010–7/1/2012) if you're auditing older periods.

Manufacturers buying welding equipment

Don't expect the manufacturing-machinery exemption to cover hand-held torches, spool guns, regulators, flowmeters, or flash-back arrestors. The Department treats hand-held welding gear as hand tools, not "machinery" or "machine tools," so the $500 threshold doesn't help. A genuinely complex, automated welding machine is a different question and may qualify.

Accountants and tax professionals

Two exemptions, two tests. The industrial-fuel exemption (§ 39-26-102(21)(a)) turns on whether the item is an energy source (acetylene yes; oxygen/argon/helium/CO2 no) and an enumerated industrial use. The manufacturing-machinery exemption (§ 39-26-709) turns on complexity — hand tools are out, and "machine tools" must be used in conjunction with machinery. Exemptions are narrowly construed (Security Life). This is a binding PLR for the requesting taxpayer only.

Common questions

Q: Is acetylene used for welding taxable in Colorado?
A: Acetylene used in manufacturing or a cutting process is exempt from state sales tax as an industrial fuel ("gas," an energy source), though some local tax may apply. The same acetylene sold for non-commercial/hobby use is taxable.

Q: What about the oxygen and shielding gases?
A: Taxable. Oxygen is a combustion catalyst, not an energy source, and argon, helium, and carbon dioxide are inert/semi-inert shielding gases — none qualify as exempt "fuel."

Q: Do welding torches and equipment qualify for the manufacturing-machinery exemption?
A: No. Hand-held torches are hand tools, not "machinery," and the attachments, parts, and tools (spool guns, regulators, flowmeters, flash-back arrestors) aren't "machine tools" used in conjunction with machinery — so they're taxable even over $500. Complex, automated welding machines could be a different story.

Q: Can my business rely on this ruling?
A: Only the taxpayer it was issued to can rely on it, and only on its disclosed facts. A private letter ruling binds the Department as to that taxpayer; it can't be relied on by anyone else and can be modified or revoked under Reg. 24-35-103.5. It does not cover self-collected home-rule city taxes.

Citations and references

Statutes:
- § 39-26-102(21)(a), C.R.S. — industrial/manufacturing fuel and "gas" treated as exempt wholesale sales
- § 39-26-102(21)(b)(I), C.R.S. — suspension of the industrial-fuel exemption, 3/10/2010–7/1/2012
- § 39-26-709(1)(a), C.R.S. — manufacturing machinery / machine tools exemption (over $500)
- § 39-26-709(1)(c)(II), C.R.S. — definition of "machinery"
- § 39-26-715(1)(a)(II), C.R.S. — definition of "gas" for residential fuel (used by analogy)
- § 39-26-104, 202, C.R.S. — imposition of sales and use tax

Guidance and cases referenced:
- FYI Sales 73 (Cleanroom Equipment Exemption — hand tools excluded from "machinery")
- FYI Sales 53 (Tools, Jigs, Dies, Patterns, and Molds — "machine tools")
- Security Life & Accident Co. v. Heckers, 177 Colo. 455, 495 P.2d 225 (1972) — exemptions narrowly construed
- Reg. 24-35-103.5 (private letter ruling procedure)

Related Colorado rulings (manufacturing / industrial fuel / machinery):
- [[gil-13-004-special-district-taxes]]
- [[gil-17-016-manufacturing-machinery]]
- [[gil-15-004-contract-manufacturing]]
- [[plr-23-008-applicability-of-the-manufacturing-machinery-exemption-to-certain-bake]]
- [[plr-18-003-aircraft-prototype-parts-and-manufacturing-machinery]]

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/PLR-12-005.pdf

Original ruling text

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

PLR-12-005
October 16, 2012
XXXXXXXXXXXXXXX
ATTN: XXXXXXXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
Re: Private Letter Ruling
Dear XXXXXXXXXXX,
You submitted on behalf of XXXXXXXXXX (“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
1. Is the sale of welding gases that produces energy for welding and that are directly used in
the manufacturing process exempt pursuant to §39-26-102(21)(a), C.R.S. from Colorado
sales tax?
2. Is the sale of inert and semi-inert welding gases that do not produce energy but are
necessary to the welding process exempt from Colorado sales taxes when the suspension
of the exemption §39-26-102(21)(a) and (b)(I), C.R.S. expires on July 1, 2012?
3. Is the sale of welders and related machinery sold to a manufacturer in Colorado whose
welding is a direct part of its manufacturing process exempt from sales tax pursuant to §3926-709(1)(a), C.R.S. if the sale price is greater than $500 or the items are included in an
invoice or purchase order of machinery or machine tools totaling more than $500?
4. Is the sale of welding attachments, parts, or machine tools exempt from Colorado sales tax
pursuant to §39-26-709(1)(a), C.R.S. if these items have a sales price greater than $500 or
the item is included in an invoice or purchase order of machinery or machine tools totaling
more than $500?

Conclusion
1. The sale of acetylene used in manufacturing is exempt1 from state sales tax (some local
sales tax may apply), but the sale and use of oxygen used in conjunction with the acetylene
is not exempt from state or state-administered local taxes.
2. The sale of inert and semi-inert gases do not qualify for the exemption of fuel used in the
manufacturing process pursuant to §39-26-102(21)(a), C.R.S. because they are not a fuel.
3. Hand-held torches and similar tools sold to a manufacturer in Colorado whose welding is a
direct part of its manufacturing process are not exempted from sales tax under the
manufacturing machinery exemption of §39-26-709(1)(a), C.R.S.
4. Welding attachments, parts, and tools are not exempt from Colorado sales and use tax
pursuant to §39-26-709(1)(a), C.R.S.
Background
Welding Gases
Company sets forth the following background. Company sells industrial, medical, and specialty
gases and various goods, including welding machinery and associated tools, parts, and
attachments to manufacturers in Colorado. The welding gases include, but are not limited to,
argon, acetylene, oxygen, and carbon dioxide.
Welding gases are used to weld metals and to cut metals. Gas welding involves the use of a
hand held gas-fed flame torch to heat the metal and the filler material to create a weld. The
gases generally used are a mixture of fuel gases and shielding gases to create a clean, hot
flame. Fuel gases, such as acetylene and oxygen (used for cutting metal) provide the energy.
Shielding gases, such as argon, helium, and carbon dioxide are inert or semi-inert gases. The
purpose of these inert gases is to protect the weld area from atmospheric gases, such as
oxygen, nitrogen, and water vapor.
To perform a weld, a hand held welding gun utilizes heat supplied by the combustible gas
(acetylene) along with welding wire and the gases carbon dioxide and argon. The wire is fed
through a tube in the gun. The gases flow from storage tanks through a hollow tube that
surrounds the wire. Acetylene is lit producing a flame and heat. The flame is applied to the
area sought to be welded. The carbon dioxide and argon act as a shielding agent to keep
oxygen and the outside atmosphere away from the weld. The weld is made by the wire melting
onto the metal pieces sought to be joined.
A metal cutting process uses an oxyfuel cutting torch. In this process, two hoses run to the
torch: one hose supplies acetylene and the other supplies oxygen. The torch is lit and the
acetylene heats the area to be cut. Once heated, the oxygen is applied and the cut is made by
a chemical reaction. The acetylene is the power source, which produces the heat to create the
cut. In the metal cutting process, the manufacturer cannot cut steel without the high
temperature from the acetylene and the oxygen.
Company posits that because acetylene and oxygen produce energy and are used in a welding
or cutting process that is directly part of manufacturing, these gases qualify for the fuel
1 The exemptions for industrial fuels and manufacturing machinery that we discuss in this ruling apply to both state
taxes and state-administered local sales taxes.

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exemption used in manufacturing. Additionally, Company states that while the inert and semiinert gases do not provide energy/burn, these gases are instrumental in creating the surface
necessary to perform a clean, quality weld and, as such, fall under the definition of “gas” in the
fuel exemption.
Welding Machinery Attachments, Machine tools and Machine Parts
In addition to welding gases and welders, Company sells welding tools, attachments, and
parts. The following is a list of items sold by Company:
1. Spool Guns: Spool guns are used for smooth feeding of aluminum during the welding
process when the material being welded is aluminum. Spool guns are used in metal
inert gas welding and are attached to the hoses running from the shielding gases, wire
feeder and power source. Spool guns provide smoother bead appearance and minimize
post weld grinding. Without the spool guns, the aluminum would easily bind up and
create poor quality welds.
2. Torches: Company sells water cooled TIG (tungsten and inert gas) torches (requires a
water cooler), water coolers and air cooled torches. To prevent the power cable, torch
or gun from overheating from high temperature welds, cooling torches are required.
3. Regulators and Flowmeters: Regulators control the pressure of the gas from the
cylinder to the torch. Flowmeters control the amount of gas from the cylinder to the
torch. The pressure and amount of gas used during the welding process requires
adjustment based on the type of welding to be completed. Regulators and flowmeters
also maintain a steady flame during the welding process, which is required to obtain
quality welds.
4. Flash Back Arrestors: Flash back arrestors prevent the ignition of the mixed gases and
prevent damage to the welding machinery. They are also required by Occupational
Safety and Health Administration regulations.
Company states that these items have a direct impact on the welding process and are all
constituent parts of the welding process used directly and predominantly in the manufacturing
process. Company also states that the welding attachments, tools, and parts they sell should
qualify for the manufacturing equipment exemption (§39-26-709(1)(a), C.R.S.) if sold to a
manufacturer where welding is a direct and critical part of the manufacturing process. Although
some of the welding items are priced in excess of $500, others are less than $500 but may be
included on invoices or purchase orders of machinery and machine tools totaling more than
$500.

Discussion
Welding Gases
Colorado imposes sales and use tax on the sale, use, storage, and consumption of tangible
personal property.2 There are exemptions that apply to certain gases, although not all gases
are exempt.
2 §39-26-104 and 202, C.R.S. (sales and use tax apply to the sale, use, storage, or consumption of tangible
personal property). You can view this and other statutes, regulations, and Department publications by visiting our
web site at www.colorado.org/revenue/tax > Tax Library.

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Sales and purchases of electricity, coal, gas, fuel oil, steam, coke or nuclear
fuel, for use in processing, manufacturing, mining, refining, irrigation,
construction, telegraph, telephone and radio communication, street and
railroad transportation services, and all industrial uses, ... shall be deemed to
be wholesale sales and shall be exempt from taxation under this part 1 [sales
taxes].
§39-26-102(21)(a), C.R.S. “Gas” is not defined by statute. However, the other items listed do
provide a context in which this term can and should be understood. All the items listed in this
section are sources of energy. This context indicates that the legislature intended to exempt
items that are at least fuel sources. This interpretation is consistent with a similar exemption
for fuels for residential use, which defines “gas” either as natural, manufactured, and liquefied
petroleum gas. See, §39-26-715(1)(a)(II), C.R.S.
Acetylene used for welding qualifies as a “gas” under this exemption because it is a source of
energy. On the other hand, oxygen itself is not an energy source but rather a catalyst for
combustion. As such, it is not exempt under this statute. Similarly, inert gases that are used to
create a proper environment for the welding process are not energy sources themselves and,
therefore, do not qualify under this exemption.
We note that these combustible welding gases must be used in at least one of the enumerated
industries, such as manufacturing, construction, mining, and other industrial uses, which
include the agricultural industry.3 Therefore, the sale of fuel used for welding within the
agricultural industry and used to repair machinery and equipment used in the agricultural
industry is exempt. However, welding gases used in a non-commercial setting, such as
acetylene gas sold by a hobby store, do not qualify.
Exemption for machinery used in manufacturing
Purchases of machinery or machine tools and parts in excess of five hundred dollars are
exempt from Colorado sales and use tax when the machinery is used directly and
predominantly in manufacturing tangible personal property in Colorado. §39-26-709(1)(a)(II)
C.R.S. For purposes of this statute, “machinery” means:
“any apparatus consisting of interrelated parts used to produce an article of
tangible personal property. The term includes both the basic unit and any
adjunct or attachment necessary for the basic unit to accomplish its intended
function.”
§39-26-709(1)(c)(II), C.R.S.
As an initial matter, we note that exemptions from tax are narrowly construed. Security Life &
Accident Co. v. Heckers, 177 Colo. 455, 495 P.2d 225, 226 (1972). Unless the exemption
clearly applies, the exemption must be denied. Machinery connotes an apparatus of some
complexity. For example, we would not classify a lug wrench or hand saw as “machinery” even
though, in some sense, it is an “apparatus” consisting of various parts. At the other extreme,
we would classify a hydraulic press as machinery because it possesses a significant degree of
3 Effective March 10, 2010, the legislature suspended this exemption for fuel used for industrial purposes until July

1, 2012. See, 39-26-102(21)(b), C.R.S.

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complexity. We believe a hand-held acetylene torch is more akin to a hand-held tool than it is
to “machinery.”
We have used this hand tool distinction in related contexts. For example, Colorado exempts
“machinery” used in “cleanrooms” where a pollutant-free environment is critical to the
manufacturing process. There, we exclude from the definition of “machinery” hand held tools.
The [cleanroom] exemption applies only to “machinery.” Therefore, tangible
personal property that is not “machinery” is not exempt. Non-machinery items
include, but are not limited to, chemicals or catalysts; gases and liquids;
energy; safety or work apparel; standard janitorial supplies; hand tools; office
equipment; furniture and supplies; replacement and repair parts that do not
constitute machinery; and the building in which the cleanroom is housed.
FYI Publication Sales 73, “Cleanroom Equipment Exemption.”4
Other states have similarly concluded that simple mechanical devices, such as hand tools, do
not constitute “machinery.” See, e.g., Ark. Regs. GR-55 Exemptions From Tax —
Manufacturers; Illinois Dept. of Rev. General Information Letter No. ST 96-0493-GIL,
12/12/1996. Other states have reached a contrary conclusion. See, In the Matter of the
Petition of Reynolds Metals Co., N.Y. Division of Tax Appeals, DTA No. 814694, 7-31-97 (hand
torches qualify as machinery used in production of aluminum.)
In some cases, welding devices are complex. For example, longitudinal and circumferential
welding machines used for manufacturing of storage tanks would likely qualify as “machinery”
because of the complexity of the welding device. However, in contrast, the welding torches at
issue here are the typical hand-held torch, tank, and regulator. These do not possess the
degree of complexity that we normally associate with “machinery” and, therefore, they are not
exempt as “machinery.”
Hand-held torches also do not qualify as “machine tools.” Although not defined by statute, the
Department interprets this machine tool exemption to apply to those tools primarily used in
conjunction with machinery. For example, jigs, molds, and patterns which are used in
conjunction with machinery (e.g., molds used in a machine press) are exempt as machine
tools. See, FYI Sales 53 - Special Regulation: Tools, Jigs, Dies, Patterns, and Molds (“Molds
or similar machine tools are exempt when held and used [in manufacturing].”). On the other
hand, hammers, wrenches and other tools are not primarily used in connection with machinery
and, therefore, do not qualify for the machine tool exemption. Hand-held torches are not
primarily used in connection with exempt machinery and, therefore, do not qualify as machine
tools.
Miscellaneous
This ruling applies only to sales and use taxes administered by the Department. Please note
that the Department administers state and state-collected city and county sales taxes and
special district sales and use taxes, but does not administer sales and use taxes for selfcollected home rule cities and 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/revenue/tax for more information about state and local sales taxes.
4 This Publication is available on the Department’s web site at www.colorado.gov/revenue/tax > Tax Library > FYI
Publications > Sales > Sales 73.

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This ruling is premised on the assumption that Company has completely and accurately
disclosed all material facts. The Department reserves the right, among others, to
independently evaluate 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 2435-103.5.
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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