Are shredded tires and railroad ties that a cement plant burns as an alternative fuel exempt from Colorado sales tax under the manufacturing-energy exemption?

Plain-English summary

A cement manufacturer runs extremely hot kilns to bake raw materials into "clinker." The plant was originally coal-fired, then modified to burn shredded tires and later railroad ties as alternative fuels to cut down on the coal it needs. These alternative fuels do the same job as coal and also put waste material to use. The manufacturer asked whether buying those shredded tires and railroad ties is exempt from Colorado sales tax under the manufacturing-energy exemption. The Department said no — they're taxable.

Colorado's exemption (§ 39-26-102(21)) covers "sales and purchases of electricity, coal, gas, fuel oil, steam, coke, or nuclear fuel" used in processing and manufacturing. That's a closed list. Shredded tires and railroad ties are tangible personal property, they aren't named in the list, and they don't fall within the meaning of any listed item. So the exemption doesn't apply — and, the Department stressed, that's true regardless of how the materials are used, even though here they function exactly like the coal they replace.

The takeaway is a statutory-construction point: this exemption is read by its plain language, item by item. Doing the same job as an exempt fuel (coal) does not make a material exempt; the material itself has to be on the list.

What this means for you

Manufacturers using alternative or waste-derived fuels

Don't assume an energy or fuel input is exempt just because it powers your process or substitutes for an exempt fuel like coal. Colorado's manufacturing-energy exemption is limited to the specific fuels it names. Tire-derived fuel, waste wood, railroad ties, and similar alternative fuels fall outside it and are taxable purchases, even when they directly replace coal in the same equipment.

Cement, lime, and other high-heat industries

If you've converted kilns to burn alternative fuels for cost or sustainability reasons, budget for sales/use tax on those fuel purchases. The environmental or cost rationale doesn't create a tax exemption; only the enumerated fuels qualify.

Accountants and tax professionals

This is a plain-language reading of § 39-26-102(21): the list (electricity, coal, gas, fuel oil, steam, coke, nuclear fuel) is exhaustive and is not expanded by functional equivalence. The Department cited Pioneer Natural Resources for applying a clear statute as written. Treat substitute and waste-derived fuels as taxable absent a separate, specific exemption. Watch the home-rule-city caveat.

Common questions

Q: Are shredded tires used as fuel exempt from Colorado sales tax? A: No. The manufacturing-energy exemption lists only electricity, coal, gas, fuel oil, steam, coke, and nuclear fuel. Shredded tires aren't on the list and don't fall within those terms, so they're taxable.

Q: They replace coal and do the same job — why aren't they exempt like coal? A: Because the exemption is read by its plain language. Performing the same function as an exempt fuel doesn't matter; the item itself has to be one of the specifically listed fuels, and shredded tires and railroad ties are not.

Q: Does it matter that the fuel is a recycled waste product? A: No. The Department said the result is the same regardless of how the materials are used. Being a waste-derived or sustainable fuel doesn't bring it within the exemption.

Q: What about railroad ties specifically?
A: Same answer. Railroad ties burned as an alternative fuel are taxable tangible personal property; they aren't among the enumerated exempt fuels.

Q: Can another manufacturer rely on this ruling?
A: No. A private letter ruling binds the Department only for the taxpayer and facts it was issued to, and explicitly cannot be relied on by anyone else. It shows the Department's reasoning, but your facts may differ.

Q: Does this cover city tax too?
A: No. The Department administers state and state-administered local sales and use tax only. Self-collected home-rule cities set their own rules. Check each home-rule city.

Citations and references

Statutes and rules:

• § 39-26-104(1)(a), C.R.S. (sales tax on retail sales of tangible personal property)
• § 39-26-102(9), C.R.S. (definition of retail sale)
• § 39-26-102(21), C.R.S. (exemption for electricity, coal, gas, fuel oil, steam, coke, or nuclear fuel used in manufacturing)

Cases:

• Pioneer Natural Resources USA, Inc. v. Dep't of Revenue, 2014 COA 101, 356 P.3d 924

Subject

Sales tax on shredded tires and railroad ties used as alternative fuel sources

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/PLR-21-007.pdf

Original ruling text

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

PLR 21-007
November 22, 2021
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Via Electronic Mail: XXXXXXXXXX
Re: Sales tax on shredded tires and railroad ties used as alternative fuel sources Dear XXXXXXXXXX: You submitted a request for a private letter ruling on behalf of XXXXXXXXXX (the “Company”), regarding sales tax on shredded tires and railroad ties used as alternative fuel sources, to the Colorado Department of Revenue (“Department”) pursuant to 1 CCR 201-1, Rule 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 1 CCR 201-1, Rule 24-35-103.5. It cannot be relied upon by any taxpayer other than the taxpayer to whom the ruling is made. Issue Are shredded tires and railroad ties that are utilized and burned to subsidize the requirement for coal in the cement manufacturing process exempt from sales tax pursuant to section 39-26102(21), C.R.S.? Conclusion No, shredded tires and railroad ties that are utilized and burned to subsidize the requirement for coal in the cement manufacturing process are not exempt from sales tax pursuant to section 3926-102(21), C.R.S. Background1 Company has provided the following statement of facts: Company is in the business of manufacturing cement from raw materials. In the process of cement manufacturing, it is essential to have extremely high temperature fires to bake 1 Paragraph (4)(b)(ii) of 1 CCR 201-1, Rule 24-35-103.5 requires the request for a private letter ruling to include a

statement of facts. This section generally recites the statement of facts provided in the request, which is not an indication that the Department found such facts relevant to its analysis. Some relevant facts may be omitted to ensure confidentiality as required by section 24-35-103.5(5), C.R.S. The terms used in this section to describe the factual background are generally those of the requester.

PLR 21-007
November 22, 2021
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raw materials within the kilns in the manufacturing process (to create clinker). The original design of the cement manufacturing plant utilized only coal to fuel the required high temperature heat needed in the manufacturing process. The plant was later modified so that shredded tires could be utilized as an alternative fuel source in the manufacturing process. The use of the shredded tires to fuel the heating source reduces the amount of coal needed in the manufacturing process. Later, the plant was again modified so that railroad ties could also serve as an alternative fuel source to try and further reduce the need for coal. The shredded tires and railroad ties serve the exact purpose as the coal and reduces the need for additional fossil fuels as well as utilizes waste product that would need to be discarded in some manner. The shredded tires and railroad ties are acquired from 3rd parties. The 3rd parties shred whole tires into a usable shredded product that can be utilized as a fuel source as well as to prepare the railroad ties into a usable product that can be burned at the plant. Discussion Colorado imposes sales tax on retail sales of tangible personal property made within the state.2 Section 39-26-102(21), C.R.S., exempts from sales tax “[s]ales and purchases of electricity, coal, gas, fuel oil, steam, coke, or nuclear fuel, for use in processing, manufacturing,” and various other specified activities. Shredded tires and railroad ties are both tangible personal property that are subject to Colorado sales tax. Shredded tires and railroad ties are not named in the list of items exempted pursuant to section 39-26-102(21), C.R.S., nor do they fall within the meaning of any of the items listed (e.g. electricity, coal, etc.). Therefore, shredded tires and railroad ties do not qualify for exemption under section 39-26-102(21), C.R.S., regardless of how they are used.3 Miscellaneous This ruling is premised on the assumption that Company has completely and accurately disclosed all material facts, that all representations are true and complete, and that Company has otherwise complied with the requirements of section 24-35-103.5, C.R.S., and the rules promulgated pursuant thereto. The Department reserves the right, among others, to independently evaluate Company’s facts, representations, and assumptions. The ruling is null and void if any such fact, representation, or assumption is incorrect and has a material bearing on the conclusions reached in this ruling. This ruling is binding on the Department and is subject to modification or revocation, in accordance with 1 CCR 201-1, Rule 24-35-103.5. 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 2 §§ 39-26-102(9) and -104(1)(a), C.R.S. 3 “If the statute is clear and unambiguous on its face, we construe the statute according to its plain language and

apply the statute as written.” Pioneer Nat. Res. USA v. Dept. of Rev., 2014 COA 101 ¶ 9, 356 P.3d 924, 925-26 (quotation marks omitted).

PLR 21-007
November 22, 2021
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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 Analysis
Colorado Department of Revenue
This ruling cannot be relied upon by any other taxpayer other than the taxpayer to whom the ruling is made.