When a customer makes a large up-front payment to sign a car lease in Colorado, which local sales taxes apply to that payment and how does the dealer report them?

Plain-English summary

A Colorado car dealer that leases passenger vehicles to in-state customers asked the Department of Revenue how to handle the up-front payment a customer makes when signing a lease — the lump sum made up of things like a capitalized cost reduction, the first month's payment, and titling and registration fees. The Department gave three answers, all about where the tax is owed and how the dealer reports it, not about whether the payment is taxable at all (it is).

1. Sourcing. The up-front payment is taxed the same way as the monthly payments — it is sourced to the lease's "primary property location" (the location tied to the leased vehicle and lessee), not to where the dealership sits. So if the customer keeps the car in a different city or county than the dealer's store, the up-front payment follows the customer's jurisdiction, just like every monthly payment does.

2. Sales tax, not use tax. Because a lessor doing business in Colorado is a "retailer," the dealer must collect state-administered local sales taxes (not use taxes) on the up-front payment. When the dealer properly collects the local sales tax, it does not also have to collect use tax for that same jurisdiction.

3. How to remit it. For a local jurisdiction where the dealer has no physical location (and hasn't set up a non-physical location on its sales tax account), the dealer remits the collected local sales tax to the county clerk on form DR 0026 — not on its regular monthly sales tax return (form DR 0100).

The Department noted that Colorado's lease-sourcing rules are taken directly from Section 310 of the Streamlined Sales and Use Tax Agreement, and that the relevant interpretation treats payments received at the start of a lease (down payments, rebates, and the like) as periodic payments sourced to the single primary property location.

What this means for you

Car dealers and leasing companies

When a customer signs a personal-use vehicle lease and pays a chunk up front, charge the local sales tax rates for the vehicle's primary property location, the same rates you use for the monthly payments — even if that's a city or county where you have no store. Collect it as sales tax, and for any out-of-jurisdiction locale where you have no physical presence, remit it to the county clerk on form DR 0026 rather than lumping it into your DR 0100 return. Getting the form right matters: the money goes to a different place than your normal sales tax filing.

Accountants and bookkeepers

The key move is that an up-front lease payment is not sourced to the dealership; it rides with the recurring-payment sourcing rule to the primary property location under § 39-26-104(3)(b)(II), C.R.S. Note the sales-vs-use-tax distinction in § 29-2-109(1)(a), C.R.S. (collecting the local sales tax relieves the use-tax obligation for that jurisdiction) and the DR 0026 / county-clerk remittance path for jurisdictions where the dealer isn't physically located. This applies to passenger vehicles for personal use, which are not "transportation equipment" and are sourced differently from it.

Lessees (the customers)

The tax on your up-front payment is calculated using your local rates (where the car will be based), not the dealer's. This is just an explanation of how the dealer must compute and route the tax — it does not change what you owe.

Common questions

Q: A customer pays several thousand dollars up front to start a lease. Which city/county sales tax rate applies?
A: The same rate as the monthly payments — the rates for the lease's "primary property location." Up-front payments under a lease that requires recurring periodic payments are sourced the same way as those periodic payments.

Q: Is the up-front payment subject to sales tax or use tax?
A: Sales tax. A lessor doing business in Colorado is a retailer and must collect all applicable state-administered local sales taxes on the up-front payment. Properly collecting that sales tax means the dealer doesn't also collect use tax for the same jurisdiction.

Q: How does the dealer remit local tax for a county or city where it has no store?
A: With form DR 0026 to the county clerk — not on the regular DR 0100 sales tax return — when the dealer has no physical location (and no set-up non-physical location) in that jurisdiction.

Q: Does this ruling apply to my dealership?
A: Not automatically. A private letter ruling is binding on the Department only for the taxpayer and facts it was issued to, and it explicitly cannot be relied on by any other taxpayer. 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. Colorado's self-collected home-rule cities set and administer their own taxes, so check with each of them separately.

Citations and references

Statutes and rules:
- § 39-26-104(1)(a), C.R.S. (imposition of sales tax on retail sales)
- § 39-26-104(3), C.R.S. (rules for determining where a sale is made)
- § 39-26-104(3)(b)(II), C.R.S. (lease/rental sourcing — each recurring periodic payment, and the up-front payment, sourced to the primary property location)
- § 39-26-104(3)(d)(III), C.R.S. (definition of "transportation equipment," which does not include personal-use passenger vehicles)
- § 39-26-106(2)(a), C.R.S. (lessor doing business in Colorado must collect tax)
- § 39-26-102(3), C.R.S. ("doing business in this state")
- § 39-26-102(8), C.R.S. (definition of "retailer," which includes a qualifying lessor)
- § 29-2-203(1), C.R.S. (state-administered local sales taxes collected in the same manner as state sales tax)
- § 29-2-109(1)(a), C.R.S. (no use-tax obligation where the local sales tax is properly collected)
- 1 CCR 201-4, Rule 39-26-102(10) (a lease transferring continuous possession/use is a "sale")
- 1 CCR 201-1, Rule 24-35-103.5 (private letter ruling procedure)

Other authority referenced: Section 310 of the Streamlined Sales and Use Tax Agreement and Compliance Review and Interpretations Committee Interpretation 2006-03 (treating up-front lease payments as periodic payments sourced to a single primary property location).

Source

• Landing page: Colorado Sales & Use Tax Letter Rulings
• Original PDF: PLR-26-001.pdf

Original ruling text

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

PLR 26-001
April 20, 2026
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Via Electronic Mail: XXXXXXXXXX
Re: Sales Tax on Up-Front Lease Payments
Dear XXXXXXXXXX:
You submitted a request for a private letter ruling on behalf of XXXXXXXXXX (“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 any up-front lease payment made to Company as part of a motor vehicle lease that requires
recurring periodic payments is sourced, like all recurring periodic payments, to the primary property
location.
2. Whether Company must collect all applicable state-administered local sales taxes—as opposed to
use taxes—on any up-front lease payment made to Company as part of a motor vehicle lease that
requires recurring periodic payments.
3. Whether Company must remit to the county clerk with form DR 0026, or instead with their monthly
sales tax return (form DR 0100), any applicable state-administered local sales taxes collected on upfront lease payments for jurisdictions in which Company is not physically located.
Conclusions
1. Any up-front lease payment made to Company as part of a motor vehicle lease that requires recurring
periodic payments is sourced, like all recurring periodic payments, to the primary property location.
2. Company must collect all applicable state-administered local sales taxes—as opposed to use taxes—
on any up-front lease payment made to Company as part of a motor vehicle lease that requires
recurring periodic payments.
3. Company must remit to the county clerk with form DR 0026 any applicable state-administered local
sales taxes collected on up-front lease payments for jurisdictions in which Company is not physically
located.

PLR 26-001
April 20, 2026
Page 2
Background1
Company is a dealer of motor vehicles with physical locations in Colorado. As part of its business
activities, Company enters into lease agreements with individual lessees who reside in Colorado for the
lease of passenger motor vehicles for their personal use. The lessee may reside in a jurisdiction which
the dealer is not physically located. The term of a lease agreement is generally three years or less, with
the lessee required to make monthly payments over the duration of the lease. At the time of signing the
lease agreement, the lessee may make an up-front payment to the Company for the lease, made up of
multiple components such as a capitalized cost reduction, the first monthly payment, and titling and
registration fees. The Company has a sales tax license in Colorado.
The Company has both captive leases and leases that are transferred or assigned to third parties after
signing. In the case of a captive lease, upon signing the lease agreement the vehicle’s title is transferred
from the Company to an Affiliated Leasing Entity. The lease is then serviced by an Affiliated Financing
Entity, which is the sole beneficiary of the Affiliated Leasing Entity.
Discussion
The Colorado Revised Statutes impose a sales tax upon all sales of tangible personal property at retail. 2
The term “sale” includes any transaction whereby a person transfers for consideration all or part of any
interest in tangible personal property and encompasses all transactions involving the conditional or
absolute transfer of title to or possession of tangible personal property (or both) for consideration. 3 The
term includes, therefore, leases and other contracts transferring the right to continuous possession or use
of tangible personal property.
Any up-front lease payment made to Company as part of a motor vehicle lease that requires recurring
periodic payments is sourced, like all recurring periodic payments, to the primary property location.
Colorado sales tax law provides rules for determining where a sale of tangible personal property is
made.4 The statute establishes specific rules for sourcing leases or rentals of motor vehicles, such as
passenger motor vehicles for personal use, that do not qualify as “transportation equipment.”5 For a lease
or rental that requires recurring periodic payments, each periodic payment is sourced to the primary
property location.6 Up-front lease payments made pursuant to a lease that requires recurring periodic
payments are sourced in the manner as all payments made pursuant to the lease.7
Company must collect all applicable state-administered local sales taxes—as opposed to use taxes—on
any up-front lease payment made to Company as part of a motor vehicle lease that requires recurring
periodic payments. Any lessor that is doing business in Colorado must collect state sales tax and any

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.
2
Section 39-26-104(1)(a), C.R.S.
3
1 CCR 201-4, Rule 39-26-102(10).
4
Section 39-26-104(3), C.R.S.
5
Section 39-26-104(3)(b)(II), C.R.S. “Transportation equipment” is defined in section 39-26-104(3)(d)(III), C.R.S., and does not
include passenger motor vehicles for personal use. Leases and rentals of transportation equipment are sourced separately under
section 39-26-104(3)(b)(III), C.R.S.
6
Id. at (3)(b)(II)(A).
7
Id. Although Colorado is not a member of the Streamlined Sales and Use Tax Agreement, the sourcing rules in section 39-26104(3), C.R.S., are taken directly from Section 310 of the Streamlined Sales and Use Tax Agreement. In its Interpretation 2006-03,
the Compliance Review and Interpretations Committee recommended that “the Agreement should be interpreted to include
payments received at the inception of a lease (down payments, rebates or other potentially taxable receipts) as periodic payments
and sourced to the primary property location consistent with the sourcing of the remaining periodic payments.” The committee
explained that it “believed that the intent of the original sourcing rule was to establish a single location for sourcing all payments.”

PLR 26-001
April 20, 2026
Page 3
applicable state-administered local sales tax on all retail sales the retailer makes in Colorado. 8 Company
is a lessor doing business in Colorado and must collect all applicable state-administered local sales taxes
on any up-front lease payment. Retailers that properly collect on a sale or lease payment the required
state-administered sales tax for a local jurisdiction are not required to collect use tax for that same local
jurisdiction on that same sale or lease payment.9
Company must remit to the county clerk with form DR 0026 any applicable state-administered local sales
taxes collected on up-front lease payments for jurisdictions in which Company is not physically located.
Ordinarily, a retailer must remit with their Colorado Retail Sales Tax Return (form DR 0100) all applicable
state and state-administered local sales taxes the retailer was required to collect for the tax period.
However, if the auto dealer has no physical location from which they make retail sales within the same
city, county, or special district as the primary property location for the motor vehicle—and the dealer has
not set up a non-physical location for that jurisdiction in connection with their Colorado sales tax
account10—the dealer must instead remit the collected sales tax for that jurisdiction with form DR 0026.
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.

8

Sections 39-26-104(1)(a) and -106(2)(a), C.R.S. A lessor entering into leases which are “sales” for Colorado sales tax purposes is
a “retailer” as defined in section 39-26-102(8), C.R.S., for Colorado sales tax purposes. Anyone “leasing . . . in this state . . . tangible
personal property . . . by a retail sale” who “maintain[s] within this state, directly or indirectly or by a subsidiary” any place of
business is “doing business in this state.” Section 39-26-102(3), C.R.S. All state-administered local sales taxes are collected in the
same manner as state sales taxes. Section 29-2-203(1), C.R.S.
9
Section 29-2-109(1)(a), C.R.S.
10
See Tax.Colorado.gov/add-locations-sites-to-your-sales-tax-account for information about setting up non-physical locations for a
Colorado sales tax account.