Does a company have to charge Colorado sales tax on DNA-based ancestry and health reports and the saliva kits it sends customers — and does the company owe use tax on those kits itself?
Plain-English summary
An online company that sells DNA-based ancestry and health-history reports asked the Colorado Department of Revenue two questions: does it have to charge sales tax on the reports and the saliva collection kits it mails to customers, and does it owe use tax on those kits itself? The customer buys a test online, gets a saliva kit in the mail, returns the sample, and the company analyzes the DNA and posts a personalized report.
Sales tax: no. Colorado taxes retail sales of tangible personal property and a specific list of services — and DNA analysis isn't on that list. The saliva kit is tangible property, but it's integral to and inseparable from the analysis service. When property and a service are bundled inseparably, Colorado applies the "true object" test: what is the customer really buying? Here the true object is the service — the analysis that yields the report — not the plastic kit. So neither the reports nor the kits are subject to sales tax.
Use tax: yes. Because the company is providing a service, it is treated as the user (consumer) of the saliva kits, rather than reselling them. That makes the kits subject to Colorado use tax — the tax on storing, using, or consuming property in the state. The company already pays use tax on the kits to another state when they ship, and Colorado gives a credit for tax paid elsewhere: if the other state's tax is less than Colorado's, the company owes Colorado the difference; if it's equal or more, no additional state use tax is due — though local (special-district) use tax could still apply, because the credit is applied to state-level use tax first and then to subdivisions.
The takeaway is a clean illustration of two linked Colorado rules: a service that incidentally hands you tangible property usually isn't a taxable sale, but the service provider typically owes use tax on the property it consumes to deliver that service.
What this means for you
Service businesses that ship customers a physical item
If your real product is a service and the physical thing you send (a kit, a sample container, materials) is just a means to deliver it, the true object test can keep the customer-facing transaction free of sales tax — even though something tangible changes hands. But don't stop there: as the consumer of those supplies, you likely owe use tax on them in Colorado. Budget for use tax on the goods you buy and use, not just for whatever you charge customers.
Multi-state operators
If you already pay sales or use tax on the same goods in another state, Colorado credits that against Colorado use tax. Watch the ordering: the credit covers state use tax first, then local. Paying enough elsewhere can zero out the state use tax while still leaving a special-district use tax obligation.
Accountants and tax professionals
The analysis rests on 1 CCR 201-5, Special Regulation 40 (inseparable mixed transactions and the true-object test) and on the use-tax credit in § 39-26-713(2)(f), C.R.S. The instructive move is the Department's split result: no sales tax on the customer transaction, but use tax on the provider's consumed property — a reminder that "not a taxable sale" doesn't mean "no tax anywhere in the chain."
Common questions
Q: Are the DNA reports themselves taxable in Colorado?
A: No. DNA analysis isn't one of the services Colorado specifically taxes, and the report is the result of that non-taxable service.
Q: What about the saliva kit the customer pays for and receives?
A: It isn't separately sales-taxed. The kit is inseparable from the analysis service, and the customer's true object is the service, so the whole transaction is treated as a non-taxable service.
Q: Then why does the company owe any tax?
A: Because as a service provider it is the user of the saliva kits, not a reseller. Using that tangible property in Colorado triggers use tax on the kits, separate from anything the customer pays.
Q: Does paying tax in another state cover the Colorado use tax?
A: Partly. Colorado credits sales or use tax already paid to another state. If that tax is equal to or more than Colorado's, no additional state use tax is due — but a local special-district use tax may still apply, because the credit hits state use tax first.
Q: Can I rely on this ruling for my own business?
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, but your facts may differ.
Q: Does this cover home-rule city taxes?
A: No. The Department administers state and state-administered local sales and use taxes only. Self-collected home-rule cities set their own rules — check with each city.
Citations and references
Statutes and rules:
- § 39-26-104(1)(a), C.R.S. (sales tax on retail sales of tangible personal property and specifically enumerated services)
- § 39-26-202(1)(a), C.R.S. (use tax for storing, using, or consuming tangible personal property in Colorado)
- § 39-26-713(2)(f), C.R.S. (credit for sales or use tax paid to another state)
- 1 CCR 201-5, Special Regulation 40 (inseparable mixed transactions; the "true object" test; the service provider as user of the property)
- 1 CCR 201-4, Rule 39-26-202 (when use of property occurs)
- 1 CCR 201-4, Rule 39-26-713-2 and -4 (credit for tax paid to another state and the order in which it is applied)
- 1 CCR 201-1, Rule 24-35-103.5 (private letter ruling procedure)
Source
- Landing page: Colorado Sales & Use Tax Letter Rulings
- Original PDF: PLR-24-007.pdf
Original ruling text
Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]
PLR 24-007
July 2, 2024
XXXXXXXXXXXX
XXXXXXXXXXXX
XXXXXXXXXXXX
XXXXXXXXXXXX
Via Electronic Mail: XXXXXXXXXXXX
Re: Ancestry and Health History Reports
Dear XXXXXXXXXXXX:
You submitted a request for a private letter ruling on behalf of XXXXXXXXXXXX (“Company”), 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.
Issues
1. Whether Company’s sale of ancestral and health reports and the saliva kits used to collect
customer’s DNA for generating these reports are subject to sales tax in Colorado.
2. Whether Company’s use of saliva kits to collect customer’s DNA for generating ancestral and
health reports is subject to use tax in Colorado.
Conclusions
1. No, Company’s ancestral and health reports and saliva kits are not subject to sales tax in
Colorado.
2. Yes, Company’s use of saliva kits to collect customer’s DNA for generating ancestral and health
reports are subject to use tax in Colorado.
Background1
Company is an online provider of ancestral and health history reports for individual customers, who are
located all over the United States and abroad. The reports are generated from Company’s analysis of the
customers’ DNA using saliva specimens. Customers purchase an ancestry test from Company’s website,
then collect their own saliva using the saliva kit that is mailed to them by the company from a distribution
center located in XXXXXXXXXX. Company pays use tax on the saliva kits to the state of XXXXXXXXXX
when they are shipped to customers. Once the customer has collected the saliva sample, the customer
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 initial request or in any supplement or amendment thereto,
which is not an indication that the Department found such facts relevant to its analysis. Some relevant facts may be redacted or
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 24-007
July 2, 2024
Page 2
mails the kit from their home to a Company-owned lab in XXXXXXXXXX, where the DNA specimens are
processed. The customers then access their individualized, personal reports through Company’s website.
Discussion
Colorado imposes a sales tax on retail sales of tangible personal property and those services specifically
included in the statute.2 Excluded services may be subject to sales tax if they are provided as part of a
mixed transaction involving the sale of tangible personal property. 3 When a vendor transfers tangible
personal property to a customer as part of services performed by the vendor for the customer, the
application of sales tax will depend on whether the sale of property and services are separable.4 If they
are not separable, the sale is evaluated to determine whether the customer’s “true object” is to acquire
the tangible property, in which case the transaction is subject to tax, or to receive the service.5 In the latter
case, the transaction is a non-taxable service even though some tangible personal property is incidentally
transferred in the performance of the service.6
Colorado imposes a use tax for the privilege of storing, using, or consuming tangible personal property
within the state.7 Use is sufficient for the imposition of the tax whenever the property is actually used or
made available for use after the purchaser (or the purchaser’s designee) takes possession of the
property, even if such use is temporary.8 When a person pays sales or use tax on tangible personal
property in an amount equal to or in excess of that imposed in Colorado in another state, the person is
granted a credit against the use tax imposed in Colorado. 9 The amount of the credit is equal to the tax
paid by the person to another state not to exceed the amount due in Colorado.10
DNA analysis for ancestral and health history is not among the services explicitly subject to tax in
Colorado. To conduct DNA analysis, Company sends saliva kits to customers to self-collect their DNA via
saliva. These saliva kits are tangible personal property used in the DNA analysis service and are integral
to and thus inseparable from the service. Because they are inseparably mixed, the taxability of the entire
transaction depends on the true object of the transaction. Based on the information provided, the true
object of the customer is the service—that is, the DNA analysis that results in ancestral and health history
reports—and not the tangible personal property of the saliva kit. Because the service and the tangible
personal property are inseparable, and the true object of the customer is the service, neither Company’s
ancestry and health history reports nor the saliva kits used in the analysis are subject to sales tax in
Colorado.
While Company’s saliva kits are not subject to sales tax, they are subject to use tax. Company, as a
service provider, is the user of the property.11 Company pays use tax to the state of XXXXXXXXXX when
the saliva kits are shipped to purchasers. Company may credit the use tax already paid to XXXXXXXXXX
toward the use tax owed in Colorado.12 Credits for tax paid in another state are applied first to state-level
use tax owed and then to any subdivision, such as a special district, that imposes a use tax.13 If the use
tax paid to XXXXXXXXXX is less than that owed to Colorado, Company would owe additional use tax to
Colorado. If the use tax paid to XXXXXXXXXX is equal to or more than that owed to Colorado, Company
would not owe use tax to the state but may still owe use tax to a subdivision.
2
Section 39-26-104(1)(a), C.R.S. See A.D. Store Co., Inc. v. Executive Dir. of Dept. of Rev., 19 P.3d 680, 683 (Colo. 2001).
A.D. Store, 19 P.3d at 683–84.
4
Id.
5
1 CCR 201-5, Special Regulation 40.
6
Id.
7
Section 39-26-202(1)(a), C.R.S.
8
Paragraph (3) of 1 CCR 201–4, Rule 39-26-202.
9
Section 39-26-713(2)(f), C.R.S.; 1 CCR 201–4, Rule 39-26-713–2.
10
Id.
11
1 CCR 201-5, Special Rule 40.
12
Section 39-26-713(2)(f), C.R.S.; 1 CCR 201–4, Rule 39-26-713–2.
13
1 CCR 201–4, Rule 39-26-713–4.
3
PLR 24-007
July 2, 2024
Page 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 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
This ruling cannot be relied upon by any other taxpayer other than the taxpayer to whom the
ruling is made.