Does Colorado sales or use tax apply to leasing space on a telecommunications tower?

Plain-English summary

The Colorado Department of Revenue ruled that leasing space on a telecommunications tower is subject to Colorado sales and use tax. A company that builds cell/communications towers and rents space on them to carriers (who attach their antennas and equipment) is leasing tangible personal property — and Colorado taxes leases of tangible personal property, even though it does not tax the lease of real estate.

The company argued the towers might be real property, which would make the lease tax-free. The Department disagreed. Colorado's legislature classifies telecommunications towers and equipment as tangible personal property for business property tax purposes (§ 39-1-102(11), C.R.S.), and Colorado courts read the property-tax and sales-tax statutes to reach consistent results where possible (BP America Production Co. v. Department of Revenue, 369 P.3d 281 (Colo. 2016)). The company itself treated the towers as tangible personal property, depreciating them over 15 years for accounting and federal income tax. So the lease payments are taxable rentals of tangible personal property.

One practical wrinkle the ruling flags: how the tax is collected depends on the lease term. For a long-term lease (more than three years), the lessor collects sales tax on the lease payments. For a short-term lease (three years or less), the lessor instead pays tax when it acquires the property — unless it gets the Department's permission to buy the property tax-free and collect tax on the lease payments instead.

What this means for you

Tower owners and site-leasing companies

If you own communications towers in Colorado and lease space on them, the Department views those leases as taxable rentals of tangible personal property. Whether you remit tax on the lease payments or pre-pay it on your purchase of the tower turns on the lease term (the three-year line) and on whether you've elected to collect on payments. How you classify the tower on your own books matters: treating it as depreciable tangible personal property cuts against any argument that it's tax-exempt real estate.

Carriers and tenants leasing tower space

Expect Colorado state and state-administered local sales/use tax to apply to your tower-space rent. Watch the home-rule-city caveat below — self-collected cities set their own rules.

Accountants and tax professionals

The decision rests on a classification borrowed from the property-tax statute (§ 39-1-102(11)) plus the consistency principle from BP America (Colo. 2016). The real-vs-tangible-property line is the whole case; if a structure is genuinely real property, its lease is outside the sales tax. Note the lease-term mechanics in § 39-26-102(23) and § 39-26-713(1)(a).

Common questions

Q: Is renting cell-tower space taxable in Colorado?
A: In this ruling, yes. The Department treated the towers as tangible personal property, so leasing space on them is a taxable lease of tangible personal property subject to state and state-administered local sales/use tax.

Q: Why isn't this treated like renting real estate (which isn't taxed)?
A: Because Colorado classifies telecommunications towers as tangible personal property — for business property tax by statute, and the Department applies the same classification to sales/use tax for consistency. The company also depreciated the towers as tangible personal property.

Q: Does the lease length change anything?
A: It changes who pays when, not whether tax applies. Over-three-year leases: collect tax on the payments. Three-year-or-shorter leases: the lessor pays tax on its purchase of the tower, unless it gets Department permission to collect on the payments instead.

Q: Does this ruling apply to my company?
A: Not automatically. A private letter ruling binds the Department only for the taxpayer and facts it was issued to and cannot be relied on by anyone else. It shows the Department's reasoning; your facts may differ.

Q: Does this cover city sales tax?
A: No. The Department administers state and state-collected local taxes only. Self-collected home-rule cities and counties set their own rules — check with each.

Citations and references

Statutes, rules, and cases:
- § 39-26-104, C.R.S. (sales/use tax on the lease of tangible personal property; real-property leases not taxed)
- § 39-26-102(23), C.R.S. (lease definition; long-term lease = more than three years)
- § 39-26-713(1)(a), C.R.S. (short-term lease: lessor taxed on acquisition unless permitted to collect on payments)
- § 39-1-102(11), C.R.S. (property-tax classification of telecommunications assets as tangible personal property)
- 1 CCR 201-4 (Colorado sales and use tax regulations)
- BP America Production Co. v. Department of Revenue, 369 P.3d 281 (Colo. 2016) (interpreting property-tax and sales-tax statutes consistently)

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/PLR-17-002.pdf

Original ruling text

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

PLR-17-002
May 3, 2017
XXXXXXXXXXXXXXXXX
Attn: XXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX
Re: Lease of Space on Telecommunications Towers
Dear XXXXXXXXXXXXXX,
You submitted on behalf of XXXXXXXXXXXXXXXXXXX (“Company”) a request for a
private letter ruling to the Colorado Department of Revenue (“Department”) pursuant to
Department Rule 1 CCR 201-1, 24-35-103.5. This letter is the Department’s private letter
ruling. This ruling is binding on the Department to the extent set forth in Department Rule 1
CCR 201-1, 24-35-103.5. It cannot be relied upon by any taxpayer other than the taxpayer
to whom the ruling is made.
Issue
Is the lease of space on Company’s telecommunication towers subject to sales or use tax?
Conclusion
The lease of space on Company’s telecommunication towers is subject to sales and use
tax.
Background
Company is in the business of constructing telecommunication towers and leasing the
towers to third parties that install telecommunication equipment on the towers. Company
acquires the site on which the towers are constructed either by purchasing land from the
landowner or entering into a ground lease with the real property owner. The ground lease
is typically for a five-year period and requires Company to restore the land to its original
condition after the ground lease expires. After the tower has been constructed or installed,
Company then leases space on the tower to its customers who attach various types of
telecommunication equipment.
Company classifies its towers located in Colorado as tangible personal property and
depreciates them over a 15-year period for both accounting and federal income tax
purposes. In some states where Company does business, Company classifies the towers
as real property.

Structure of Analysis
To determine whether sales or use tax is due, the Department will examine the following
question:
1. Is Company’s lease of space on telecommunication towers the lease of tangible
personal property pursuant to §§39-26-104 and 102(23), C.R.S.?
Discussion
Colorado imposes sales and use tax on a lease1 of tangible personal property, but not on
the lease of real property.2 There is some debate about whether telecommunication
towers themselves constitute real or tangible personal property.3 The Colorado legislature
has classified these towers as tangible personal property for purposes of Colorado
business property tax.4 Although the property tax statute does not govern the application
of sales and use taxes, these two tax statutes have been interpreted to achieve
consistency when possible.5
For this reason, we conclude that Company’s leases of space on the towers are for
tangible personal property and, therefore, customer’s lease payments for the use of the
space on the towers are subject to state and state-administered sales or use taxes.
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
self-collected 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.
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 24-35-103.5.
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.
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2
3

4
5
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§ 39-26-102(23), C.R.S. (long term leases are for more than three years). If the lease is for
three years or less, then the lessor must pay sales or use tax when it acquires the property
unless the lessor obtains the department’s permission to purchase the property exempt of tax
and collect tax on lease payments. §39-26-713(1)(a), C.R.S. If the lease is for more than three
years, then the lessor must collect sales tax on the lease payments.
§ 39-26-104(1), C.R.S., 1 Code Colo. Reg. 201-4.
Illinois Department of Revenue General Information Letter ST00-0156 T-GIL; 39-1-102(11),
C.R.S. (Colorado property tax classifies telecommunication assets on leased property as
tangible personal property).
§ 39-1-102(11), C.R.S. (Colorado property tax classifies telecommunication assets on leased
property as tangible personal property)
BP American Production Company v. Department of Revenue, 369 P3d 281(Colo. 2016).
DR 4010A (06/11/14)

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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DR 4010A (06/11/14)