C&C of Denver Tax Guide - Exemption

City and County of Denver, Colorado

TAX GUIDE

Topic No. 24

EXEMPTION-BURDEN OF PROOF

The retail sale or purchase of articles of tangible personal property not otherwise exempt is subject to sales or use tax. Exemptions in the DRMC are clearly defined and very specific. The list of exempt commodities cannot be increased by implication or similarity. In all cases, the burden of proof is upon the vendor to establish that a sale is tax exempt.

The vendor is required to provide evidence to support the exempt status of a transaction. Such evidence may include:

A. A copy of the customer's current resale certificate or the vendor's own file of valid customer resale numbers, providing the purchaser is substantially engaged in reselling like products as those being purchased;

B. A copy of the purchaser's or general contractor's building permit showing use tax was properly paid to another municipality;

C. Delivery receipts, bills of lading, or other evidence the sale was made to a non-resident and delivery was made by the vendor, common carrier, or by mail to a location out of Denver;

D. A letter of exemption issued by the Denver Treasury Division (a list of exemptions granted is on file in the Treasury Division); or

E. A properly executed "Claim For Exemption From Denver Sales, Use, or Lodger's Tax." This form is designed for single-event exempt status at hotels and restaurants.

The above represent some of the types of evidence the Manager of Revenue may accept as indicators of an exempt transaction. However, the exempt status of each transaction must be determined on its own merits with the ultimate responsibility for the burden of proving the exemption upon the vendor. Therefore, the vendor should know the nature of his/her customer's business before allowing any form of exemption.

The flow chart on the following page can be used to help vendors making retail sales determine when a transaction is properly exempt from collection of Denver sales tax.

Does the sale qualify to be purchased tax free for resale?

Does the purchaser hold a valid "RESALE LICENSE"

from the State of Colorado and the City of Denver or.................................................................. NO......................................................................... CHARGE SALES TAX

other city where the business is operated?

YES

Will the item be consumed in performance of service,

repair or in the manufacturing process?.......................................................................................... YES........................................................................ CHARGE SALES TAX

Will the item purchased either be resold in its same

form or become a component part of a product for....................................................................... NO......................................................................... CHARGE SALES TAX

resale?

YES

Will the purchaser sell the product and charge tax

to its customer? ............................................................................................................... NO......................................................................... CHARGE SALES TAX

YES

THE PURCHASE IS WHOLESALE

DO NOT CHARGE SALES TAX

EXAMPLES

1. ABC Distributors is currently being audited. ABC has deductions from gross sales for resale, and sales to charitable organizations. Evidence must be provided supporting the validity of these deductions. "Resale" sales should be documented by providing valid sales tax account numbers and the customer must be reselling the products purchased. Sales to exempt/charitable groups should be supported with a letter from the Treasury Division granting an exemption to the customer and the purchase must be used in the regular charitable activities of the exempt entity (see related Tax Guide topic - Charitable, Religious, and Governmental Exemption).

2. John Doe Construction has pulled a building permit to perform some work in the City of Aurora. The permit shows proper use tax was paid to Aurora on the materials portion of the contract. John Doe is purchasing his material from a Denver vendor. This transaction and any subsequent purchases, for this job only, are not subject to Denver tax, provided the vendor maintains a copy of the permit indicating use tax was paid to another municipality.