By Austin DeMoss, Tara Johnson and Alex LaFleur
On December 7, 2020, Colorado Governor Jared Polis signed into law H.B. 20B-1004, which permits certain bars, restaurants and mobile food vendors to claim a limited deduction against their state (not local) sales when filing their sales tax returns for the four-month period of November 2020 to February 2021, and to retain or spend the resulting state sales tax.
Even though Governor Polis had temporarily deferred this state sales tax by executive order on November 25, H.B. 20B-1004 has now permanently forgiven it. This special deduction applies to as much as $70,000 in net taxable sales for each of these months. According to the Colorado Legislative Council, this equates to about $2,000 in sales tax collections per retailer per site, for up to five sites each month (maximum monthly benefit of about $10,000).
Eligible bars and restaurants
Alcoholic Beverage Drinking Places: The special deduction is available to businesses in the “alcoholic beverage drinking places” industry, which is comprised of establishments open to the public known as 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 businesses in the “restaurants and other eating places” industry, comprised of establishments that are open to the public; known as restaurants, cafes, lunch counters and carryout shops; and 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 (see below); 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 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 North American Industry Classification System (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.
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 (“Department”) has published webpages containing instructions that explain how eligible businesses should report this special deduction on their Colorado sales tax returns. Eligible bars and restaurants should click here. Eligible mobile food vendors should click here.
The Department has begun sending letters to eligible retailers notifying them of this new, limited Colorado state sales tax deduction. Any business that wants to claim this deduction but has not yet received this letter should carefully review the state’s criteria to determine whether it is eligible.
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.
Our 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 your Wipfli representative or one of Wipfli’s state and local tax specialists: