Colorado Manufacturing Sales Tax Exemption
Colorado manufacturers are eligible for a local sales tax exemption on purchases of machinery and machine tools over $500 to be used directly and predominantly in manufacturing tangible personal property for sale. This Colorado sales tax exemption for manufacturing is now automatically applicable to sales taxes at the Regional Transportation District (“RTD”) and Scientific and Cultural District (“CD”) jurisdictions. Prior to January 1, 2014, purchases of machinery and machine tools that would qualify for an exemption from sales tax at the Colorado state tax rate of 2.9% would not be subject to an exemption at the local RTD and CD jurisdictions.
Colorado Manufacturing Sales Tax Exemption: Critical Criteria
The Colorado sales tax exemption for manufacturing that applies to the local Regional Transportation District (RTD) and Scientific and Cultural District (CD) jurisdictions must meet the same criteria as the exemption that applies to the 2.9% state sales tax. Those criteria are:
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- The machinery must be used in Colorado
- The machinery must be used directly and predominantly to manufacture tangible personal property for sale
- The machinery must have a useful life of one-year or more
- The machinery must be included on a purchase order or invoice totaling more than $500
- The machinery must be capitalized
What is “Direct Use" in Manufacturing?
Per Colorado Revenue Statutes 39-26-709(1)(d), “direct use in manufacturing” is defined as beginning at the point in which the raw material reaches the first machine involved in changing the form of that raw material and ending at the point in which that raw material has been altered to its completed form. Equipment such as forklifts or conveyor belts that move materials from one step in production to another step in a continuous flow would also meet the definition of direct use.
What is “Predominant Use" in Manufacturing?
Colorado Revenue Statutes 39-26-709.1 defines predominant use as, “the greatest use of the machinery must be its use in manufacturing.” If machinery or machine tools have multiple uses, then they must be used more than 50% of the time in the direct use production process to qualify for the Colorado sales tax exemption for manufacturing. To determine whether machinery or machine tools meet this predominant use criteria, they are not considered to be in use when they are shut off or when they are being repaired.
Justidictions Where Machinery and Machine Tools Exemptions Apply
Colorado Publication DR1002 has a complete listing of the boundaries for the Regional Transportation District (RTD) and Scientific and Cultural District (CD) jurisdictions that began applying the Colorado sales tax exemption for machinery and machine tools on January 1, 2014. This publication also provides a list of other cities, counties and special districts that offer a sales tax exemption from the local tax rates. Since localities have the option, but are not required to offer the machinery and machine tools sales tax exemption per Colorado Revenue Statutes 29-2-105(1)(d)(I)(A), it is important to consult this publication to determine whether a qualifying purchase is exempt within each local jurisdiction.
Claim Colorado Sales Tax Exemption with Form DR1191
In order to claim the Colorado sales tax exemption for manufacturing machinery and machine tools, qualifying manufacturers need to complete the
Sales Tax Exemption on Purchases of Machinery and Machine Tools (DR 1191) and provide one copy to their vendors and a second copy to the Colorado Department of Revenue. For manufacturers who have already paid sales taxes to their vendors, they can complete and submit the
Claim for Refund of Tax Paid to Vendors (DR 0137B) to recover state sales taxes on qualifying manufacturing machinery from the Colorado Department of Revenue. For manufacturers who have accrued state use tax on purchases of exempt machinery and machine tools, they can complete and submit the
Claim for Refund (DR 0137) to the Colorado Department of Revenue. These forms can also be used to apply for refunds for RTD and CD sales taxes administered by the state, which are listed on DR1002. For RTD and CD sales taxes administered at the locality, refund claim forms vary and can generally be found on the city or county’s website.
Reach Out to Us with Questions
As with all sales and use tax research, the specifics of each case need to be considered when determining taxability. Additional advice from Agile Consulting Group’s
sales tax consultants can be found on our page summarizing
Colorado sales and use tax exemptions . If you have questions, comments, concerns or would like to discuss the specific circumstances you are encountering in regard to sales and use tax, please contact our sales tax consultants at (888) 350-4TAX (4829) or via email at
info@salesandusetax.com .
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