Sales tax relief is on the way for Colorado restaurants, bars and other food purveyors this summer under a limited special state deduction for those businesses.
On June 3, Colorado Gov. Jared Polis signed into law HB22-1406, which permits qualifying bars, restaurants, caterers, mobile food vendors, food service contractors, and hotel-operated restaurants, bars or catering services to claim a limited deduction against their state, but not local, sales subject to sales tax when filing their sales tax returns for the July through September 2022 periods, and to retain the resulting state sales tax.
This special deduction applies to as much as $70,000 in net taxable sales and approximately $2,000 in sales tax for each of these months per retailer per site, for up to five sites each month. The maximum monthly benefit totals about $10,000.
Eligible bars and restaurants
Alcoholic beverage drinking places: The special deduction is available to establishments open to the public, including bars, taverns, brew pubs, distillery pubs, nightclubs, sales rooms, vintner’s restaurants or drinking places primarily engaged in preparing and serving alcoholic beverages for immediate, on-premises consumption. Sandwiches and light snacks may also be available for consumption on the premises of these establishments.
Breweries, distilleries, wineries and retail liquor or drug stores offering tastings are not within this industry. Most businesses in this industry are assigned to North American Industry Classification System (NAICS) code 7224.
Restaurants and other eating places: The special deduction is also available to establishments open to the public, including restaurants, cafes, lunch counters and carryout shops, and are primarily engaged in one of the following:
- Providing prepared food services at a fixed, physical premises to patrons who order and are served while seated, and pay after eating
- Providing prepared food services at a fixed, physical premises to patrons who generally order or select items (e.g., at a counter, or in a buffet line) and pay before eating
- Preparing and/or serving at a fixed, physical premises specialty snacks (e.g., ice cream, frozen yogurt, or cookies) and/or nonalcoholic beverages (e.g., coffee, juices, or sodas) for consumption on or near the premises.
The industry does not include establishments selling food from mobile vehicles; establishments presenting live theatrical productions and other entertainment facilities; hotels or bed and breakfast establishments; specialty food stores; vending machines; caterers or other food service contractors; or private cafeterias at workplaces, universities or hospitals. Most businesses in this industry are assigned to North American Industry Classification System (NAICS) code 7225.
Eligible mobile food vendors
The special deduction is also available to businesses in the “mobile food services” industry, which includes retailers primarily engaged in preparing and serving meals, snacks and nonalcoholic beverages for immediate consumption from motorized vehicles (e.g., food trucks or ice cream trucks) or nonmotorized carts (e.g., hot dog carts). Most businesses in this industry are assigned to NAICS code 722330.
Retailers delivering food prepared by third parties are not eligible. Retailers shipping meal kits, heat-at-home meals, or other unprepared food to consumers for home consumption are also not eligible.
Catering: This industry comprises establishments primarily engaged in providing single event-based food services. These establishments generally have equipment and vehicles to transport meals and snacks to events and/or prepare food at an off-premises site. Banquet halls with catering staff are included in this industry. Examples of events catered by establishments in this industry are graduation parties, wedding receptions, business or retirement luncheons and trade shows. Most businesses in this industry are assigned to NAICS code 722320.
Eligible food service contractors
Food service contracting: This industry comprises establishments primarily engaged in providing food services at institutional, governmental, commercial or industrial locations of others based on contractual arrangements with these types of organizations for a specified period of time. The establishments of this industry provide food services for the convenience of the contracting organization or the contracting organization's customers.
The contractual arrangement of these establishments with contracting organizations may vary by type of facility operated (e.g., cafeteria, restaurant, fast-food eating place), revenue sharing, cost structure, and personnel provided. Management staff is always provided by food service contractors. Examples of food service contractors include:
- Airline food service contractors
- Food concession contractors (e.g., at sporting, entertainment, convention facilities)
- Cafeteria food service contractors (e.g., at schools, hospitals, government offices)
Most businesses in this industry are assigned to NAICS code 722310.
Bars and restaurants must make sales to customers at one or more permanent places of business in Colorado to be eligible. In addition, bars, restaurants and mobile food vendors must meet the following qualifications to be eligible for this limited deduction:
- Retailers must be scheduled to file sales tax returns on a monthly basis.
- Retailers must make taxable sales during the period for which the special deduction is claimed.
- Retailers must file a return and pay all state-administered local sales taxes on time (i.e., on or before the statutory due date).
- Retailers must report the special deduction, in accordance with these instructions, on a timely filed return, and pay any remaining state sales taxes due on time.
- Retailers may not claim this deduction for more than five physical reporting sites (bars and restaurants) or motorized vehicles/nonmotorized carts (mobile food vendors).
Return filing instructions
The Colorado Department of Revenue (DOR) has published instructions on their website explaining how eligible businesses should report this special deduction on their Colorado sales tax returns.
Any business seeking to claim this deduction should carefully review the state’s criteria to determine eligibility. Note that this special deduction does not apply to any state-administered city, county or special district taxes. Retailers should contact self-collecting home-rule cities regarding any similar programs that they may offer.
Wipfli tax professionals can help you understand your eligibility for the grant and assist with requesting it from the DOR. If you have questions about this grant or your unique situation, please contact us.
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