If my customer hires their own shipping company to pick up goods at my Colorado dock and deliver them out of state, is the sale sourced to my location or to the customer's?
Plain-English summary
A Colorado manufacturer that ships goods all over the country asked the Department a sourcing question: when a customer hires its own shipping company to pick the goods up at the manufacturer's Colorado dock and haul them out of state, whose location does the sale count as happening in — the seller's Colorado facility, or the buyer's out-of-state location? Sourcing matters because it decides which jurisdiction's sales tax applies.
The manufacturer described two arrangements borrowed from shipping terms ("incoterms"): under DDP (Delivered Duty Paid) the seller arranges and pays for shipping to the destination; under Exworks (EXW) the goods are simply made ready at the seller's dock and the customer arranges and hires its own carrier, taking on all cost and risk from pickup onward. The question was about the EXW situation.
The Department's answer: the sale is sourced to where the buyer receives the goods, which here is outside Colorado. Colorado uses a step-by-step sourcing rule. Step one: if the buyer receives the goods at a business location of the seller, the sale is sourced there. But the statute says "receipt" does not include possession by a shipping company on behalf of the purchaser. When the buyer's own hired carrier takes the goods at the dock, that carrier is holding them for the buyer — so the buyer has not "received" them at the seller's Colorado location. Step two then applies: the sale is sourced to the place where the buyer actually receives the goods, if the seller knows that location — here, the buyer's facility outside Colorado.
The Department added two important notes. First, where title transfers is irrelevant to sourcing; the only thing that matters is where the purchaser receives the property. Second — and unusually candid — the Department acknowledged this conclusion is contrary to a 2010 Court of Appeals decision, Leggett & Platt, Inc. v. Ostrom, which had sourced such sales to the seller's facility. The Department explained that Leggett & Platt predates the 2019 statute (House Bill 19-1240) that enacted the current sourcing rules in § 39-26-104(3), C.R.S., and also concerned a city code rather than the state statutes.
What this means for you
Colorado sellers and manufacturers
How shipping is arranged changes where your sale is sourced. If the buyer hires the carrier and picks up at your dock (an EXW-style deal), the sale is generally sourced to the buyer's delivery location — potentially outside Colorado, meaning no Colorado sales tax on that sale. If you arrange the shipping (DDP-style), the analysis is different. Keep documentation of who hired the carrier and where the goods were delivered; that's the evidence that supports your sourcing.
Buyers arranging their own freight
If you hire your own carrier to collect goods from a Colorado seller and deliver them out of state, the sale is generally sourced to your out-of-state location, not Colorado. Be aware your own state's use tax may then apply where the goods are first used.
Accountants and tax professionals
The pivot is the statutory definition of "receipt" in § 39-26-104(3)(d)(II), C.R.S., which excludes possession by a shipping company on behalf of the purchaser — so a buyer-hired carrier's pickup is not receipt at the seller's location. Note the Department's own caveat that this reading departs from Leggett & Platt v. Ostrom, 251 P.3d 1135 (Colo. App. 2010), because that case predates House Bill 19-1240 (2019). Title-transfer location does not drive sourcing.
Common questions
Q: Does it matter whether the buyer or the seller arranges shipping?
A: Yes. This ruling addresses the case where the buyer hires its own carrier and picks up at the seller's dock. There, the sale is sourced to where the buyer receives the goods, not the seller's location.
Q: The goods leave from a Colorado dock — isn't that a Colorado sale?
A: Not necessarily. The law says possession by a shipping company on behalf of the buyer is not the buyer "receiving" the goods. So pickup at the Colorado dock by the buyer's carrier doesn't source the sale to Colorado; it's sourced to where the buyer actually receives them.
Q: What about where title transfers?
A: It doesn't matter for sourcing. The Department said the place where title transfers is not relevant — the crucial factor is where the purchaser receives the property.
Q: Doesn't an old court case say the opposite?
A: It did. The Department acknowledged this conclusion is contrary to Leggett & Platt v. Ostrom (Colo. App. 2010), but explained that case predates the 2019 statute (HB 19-1240) that created the current sourcing rules and concerned a city code, not the state statutes.
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 and may source sales differently — 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)
- § 39-26-102(15)(a)(I), C.R.S. (definition of tangible personal property)
- § 39-26-104(3)(a), C.R.S. (step-by-step rule for sourcing sales of tangible personal property)
- § 39-26-104(3)(d)(II), C.R.S. ("receipt" does not include possession by a shipping company on behalf of the purchaser)
- 1 CCR 201-1, Rule 24-35-103.5 (private letter ruling procedure)
Case law and legislation referenced in the ruling:
- Leggett & Platt, Inc. v. Ostrom, 251 P.3d 1135 (Colo. App. 2010) (the Department notes its conclusion is contrary to this pre-2019 decision)
- House Bill 19-1240 (2019) (enacted the current sourcing rules in § 39-26-104(3), C.R.S.)
Source
- Landing page: Colorado Sales & Use Tax Letter Rulings
- Original PDF: PLR-24-008.pdf
Original ruling text
Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]
PLR 24-008
December 30, 2024
XXXXXXXXX
XXXXXXXXX
XXXXXXXXX
XXXXXXXXX
Via Electronic Mail: XXXXXXXXX
Re: Sourcing Sales When Customer Arranges for Third-party Shipping
Dear XXXXXXXXX:
You submitted a request for a private letter ruling on behalf of XXXXXXXXX (“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.
Issue
Whether a sale is sourced, for sales tax purposes, to the business location of the seller or the known
location of the purchaser when the purchaser arranged for and hired a third-party shipping company to
take possession of the property at the business location of the seller and deliver it to the purchaser.
Conclusion
A sale is sourced to the known location of the purchaser when the purchaser arranged for and hired a
third-party shipping company to take possession of the property at the business location of the seller and
deliver it to the purchaser.
Background1
Company manufactures and sells goods in the state of Colorado and across the entire country.
XXXXXXXXX. Customers may either have Company ship the goods or pick up the goods from the
Company’s manufacturing location in XXXXXXXXX, Colorado.
When a customer elects for Company to ship, Company arranges for the shipping and uses one of the
shipping industry standard incoterms, Delivered Duty Paid (DDP). With this DDP incoterm, Company
assumes responsibility and costs of shipping to the named place of destination.
When a customer elects to pick up the goods, Company uses another one of the shipping industry
standard incoterms, Exworks (EXW). This shipping term requires the Company to have the goods ready
for collection at Company’s XXXXXXXXX dock. Company has no association with helping to arrange for a
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 24-008
December 30, 2024
Page 2
shipping company; arrangement for a shipping company lies completely with the customer. Title transfers
at the time the goods are picked up. The customer is accountable for all subsequent costs and risks,
including loading the goods into their shipping vehicle at the Company’s location.
In the case of one of Company’s customers (“Customer A”), purchases the goods and elects to receive
the goods at Company’s XXXXXXXXX facility. Company prepares the goods for Customer A, and
Customer A arranges for a third-party logistics company to pick up the goods for delivery of the goods to
Customer A’s facilities outside of Colorado, per the Exworks incoterm.
Because Customer A receives the goods from the third-party logistics company that it hired, the final
destination and first use of the goods is outside of Colorado.
Discussion
A sale is sourced to the known location of the purchaser when the purchaser arranged for and hired a
third-party shipping company to take possession of the property at the business location of the seller and
deliver it to the purchaser. Colorado imposes a sales tax on the retail sale of tangible personal property,
unless a specific sales tax exemption applies. 2 The term “tangible personal property” means “corporeal
personal property” and generally embraces “all goods, wares, merchandise, products, and commodities,
and all tangible or corporeal things and substances that are dealt in and capable of being possessed and
exchanged.”3
A sequence of rules determines the location to which a sale of tangible personal property is sourced.4
First, if the “tangible personal property, commodities, or services are received by the purchaser at a
business location of the seller, the sale is sourced to that business location.”5 If a purchaser does not
receive their tangible personal property at a business location of the seller, then the sale is sourced to the
location where receipt occurs.6 For the purposes of sourcing a sale, “receipt” and “receive” are defined
such that their meaning “does not include possession by a shipping company on behalf of the
purchaser.”7
When a shipping company hired by a purchaser takes possession of transacted-for tangible personal
property, it then takes possession of that property on behalf of the purchaser. In the case at issue,
Customer A arranges for a third-party logistics company to receive and ship the purchased goods.
Therefore, Customer A does not receive the goods at Company’s Colorado facility; the third-party
shipping company does. Thus, in this case, Customer A, does not take possession of transacted-for
tangible personal property at a business location of the seller. Because the shipping company and not
Customer A receives the goods at Company’s Colorado facility, the sale would not be sourced to
Company’s Colorado facility under the provisions of Section 39-26-104(3)(a)(I), C.R.S.
If the goods are not received at Company’s Colorado facility, then “the sale is sourced to the location
where receipt by the purchaser occurs … if that location is known to the seller.”8 In the case at issue, the
goods are received by Customer A at a location outside Colorado where they are delivered to Customer
A by the third-party shipping company. Note that, for the purposes of sourcing these sales, the place at
which title transfers from the seller is not relevant. The crucial factor is the place at which the purchaser
receives the transacted-for tangible personal property.9 Therefore, the sale is sourced to the location at
2
Section 39-26-104(1)(a), C.R.S.
Section 39-26-102(15)(a)(I), C.R.S.
4
Section 39-26-104(3)(a), C.R.S.
5
Id. at (3)(a)(I).
6
Id. at (3)(a)(II).
7
Id. at (3)(d)(II).
8
Id. at (3)(a)(II).
9
Id. at (3)(a). The conclusion of this letter is contrary to the Colorado Court of Appeal’s opinion in Leggett & Platt, Inc. v. Ostrom,
251 P.3d 1135 (Colo. App. 2010). In that case, the court held that sales like those at issue here are sourced to the seller’s facility. Id.
at 1142–43. Leggett & Platt predates the enactment in 2019 of House Bill 19-1240 which added the whole of Section 39-26-104(3),
3
PLR 24-008
December 30, 2024
Page 3
which Customer A received the goods from their shipping company, in this case a location outside of
Colorado.
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.
C.R.S. House Bill 19-1240, available at https://leg.colorado.gov/bills/hb19-1240. Moreover, the court’s holding in Leggett & Platt
specifically concerns the requirements of Thornton’s City Code and not the Colorado Revised Statutes.