39-26-105-3 - Documenting Exempt Sales
Basis and Purpose. The statutory bases of this rule are §§ 39-21-112(1), 39-21-113, 39-26-102(19), 39-26-102(22), 39-26-105(3), 39-26-106, 39-26-107, 39-26-204(2), 39-26-209, 39-26-703(1), 39-26-704(1), 39-26-708, 39-26-713(2)(d) and 39-26-718, C.R.S. The purpose of this rule is to establish the requirements a retailer must meet to be relieved of liability for the collection of sales and use tax.
(1)
General Rule. A seller must
exercise due diligence with respect to any sale for which the purchaser claims
exemption from sales tax. If evidence readily discernible to the seller at the
time of the sale provides reason to doubt the purchaser's eligibility for the
exemption claimed, the seller must obtain and retain sufficient information and
documentation from the purchaser to resolve the doubt or must collect the
applicable tax. If the Department subsequently finds a transaction was not
exempt at the time of sale, a seller who has complied with this rule will be
considered to have met its burden of proof and will be relieved of liability
for the collection of tax with respect to that transaction. For purposes of
this rule, sellers include both retailers and wholesalers.
(2)
Seller's Due Diligence Requirements
at Time of Sale.
(a) A seller must
verify that the purchaser's sales tax license or exemption certificate is
current and valid at the time of the sale.
(i)
Verifying a Colorado License or Certificate. Except as
provided in this rule, a seller must verify that the license or certificate is
valid using the Department's online verification system. To verify that a
license or certificate is current and valid, a seller can go online to
www.colorado.gov/revenueonline and follow the link to "Verify a License or
Certificate." In lieu of verifying a purchaser's license or certificate through
the Department's online verification system, the seller may inspect a physical
copy of the license or certificate for completeness and ensure the license or
certificate has not expired. If the seller relies on a physical copy of the
license or certificate for verification, the seller must maintain a copy of the
document for their records.
(ii)
Out-Of-State Purchasers. A seller may accept from an
out-of-state purchaser a resale license, exemption certificate, or other
authorized documentation from the issuing state. The seller must maintain a
copy of the document for their records. A seller may also have the out-of-state
purchaser complete a Department-issued Exemption Certificate or Affidavit of
Exempt Sale, or the Multistate Tax Commission's Exemption/Resale Certificate,
and maintain the fully-completed document for their records.
(iii)
Recurring Business
Transactions. A seller who has verified that a purchaser has a current
and valid license or certificate is not required to continue verifying the same
license or certificate for subsequent purchases made prior to the expiration of
the license or certificate, unless the seller has reason to believe that the
purchaser no longer has a current and valid license or certificate. A seller
that believes a purchaser no longer has a current or valid license or
certificate must follow the procedures in paragraph (2)(c) of this rule. A
seller must re-verify a purchaser's license or certificate during the first
transaction following the expiration of the license or certificate.
(b)
Sales to Exempt
Organizations. Sellers must consider whether the nature of goods or
services sold is consistent with the purchaser's claim that the sale is exempt
from sales or retailer's use taxes. Sellers must also verify that the purchase
is made directly from the funds of the entity claiming the exemption from sales
or use tax. However, a seller exercising due diligence is not required to
verify the source of the funds if a charitable organizations purchases total
less than $250.
(i)
Sales to
Charitable Organizations. Goods or services that are reasonably used
exclusively in the conduct of the organization's ordinary exempt functions and
activities are eligible for exemption, pursuant to §
39-26-718(1)(a),
C.R.S. For example, the sale of a diamond ring purchased on behalf of a
tax-exempt church would not appear to be the purchase of a good used in the
ordinary exempt functions of a church.
(ii)
Sales to Governmental
Entities. Goods or services that are reasonably used in a governmental
capacity are eligible for exemption, pursuant to §
39-26-704(1),
C.R.S. For example, the sale of a single set or multiple sets of golf clubs to
an employee of the Department of Revenue would not appear to be the purchase of
goods used in the Department's governmental capacity.
(c) If evidence readily discernible to the
seller at the time of the sale provides reason to doubt the purchaser's
eligibility for the exemption being claimed, the seller must obtain and retain
sufficient information and documentation from the purchaser to resolve the
doubt or the seller must collect the applicable tax.
(i)
Resolving Doubts About Purchaser
Eligibility for Exemption. A seller has the burden of demonstrating to
the Department that the purchaser was eligible for exemption. In resolving any
doubt about a purchaser's eligibility for exemption, a seller must either
comply with the requirements of this paragraph (2)(c)(i) or collect the tax.
(A)
Sales to Wholesalers.
The seller must reasonably conclude that the goods sold are reasonably for
resale in the course of purchaser's ordinary business. For example, a florist
cannot make a tax-exempt purchase of a mattress as a sale for resale, as it is
not reasonable to conclude a florist would sell a mattress in the course of a
florists' ordinary business.
(B)
Documentation. Sellers must keep sufficient information and
documentation that demonstrate the seller's due diligence to verify the
purchaser's claim for exemption.
(I) A seller
must have the purchaser fully complete a Department- issued Affidavit of Exempt
Sale, or
(II) Alternatively, a
seller may independently record the following information; the name and address
of the purchaser, purchaser's license or certificate number, a copy of the
license or certificate if applicable, the date of sale, the purchase price, a
description of the goods or services sold, a description of the purchaser's
business, and the name on the credit card or check used by the purchaser to pay
for the transaction.
(ii)
Collecting Tax if Doubts About
the Purchaser's Eligibility for Exemption Cannot be Resolved. A seller
who has not verified the purchaser's eligibility for exemption in accordance
with paragraph (2)(c)(i) of this rule must collect the applicable tax at the
time of sale and issue the purchaser a receipt pursuant to §
39-26-102(22),
C.R.S.The purchaser may then file a claim for refund with the Department.
(3)
Seller's Requirements Under Audit. If the Department finds the
records of a seller do not demonstrate compliance with the requirements of this
rule, the Department shall allow the seller 120 days to collect information
sufficient to comply with the requirements of this rule. The Department may
extend the 120-day period by 60 days for good cause shown.
Notes
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