Colorado Implements Sales Tax Relief for Restaurants, Bars, & Food Trucks

Thoughtware Alert Published: Dec 30, 2020

On December 7, Colorado Gov. Polis signed House Bill 20B-1004 allowing a temporary deduction from state net taxable sales for qualifying retailers primarily in the bar, restaurant, and mobile food services industries. The resulting state sales tax can be retained by the business permanently to provide assistance for business disruptions due to the COVID-19 pandemic. The temporary deduction is limited to sales occurring November 2020 through February 2021. The maximum monthly benefit is $10,000. Taxpayers should reach out to home-rule jurisdictions regarding local COVID-19 sales tax relief efforts, as the bill doesn’t affect taxes imposed by local cities and municipalities.

The Colorado Department of Revenue (Department) has started sending letters to eligible retailers notifying them of this limited state sales tax deduction. Any taxpayer who wishes to claim this deduction but hasn’t yet received a letter from the Department should carefully review the criteria set forth by the state to determine eligibility. The Department will allow taxpayers to claim the special deduction on the existing Colorado Sales Tax Return Form DR 0100. Step-by-step instructions for accurately completing the sales tax return form can be found for eligible bars and restaurants, as well as mobile food vendors.

Eligible Retailers

The bill is specific to alcoholic beverage drinking places (bars), restaurants and other eating places, and mobile food services. The “alcoholic beverage drinking places” industry is described as establishments that are open to the public, may have light snacks available for consumption, and are known to the public as “bars, taverns, sales rooms, vintner’s restaurants, brew pubs, distillery pubs, nightclubs, or drinking places primarily engaged in preparing and serving alcoholic beverages for immediate, on-premise consumption.” Breweries, distilleries, wineries, and retail liquor or drug stores that offer tastings don’t qualify for this deduction. Most businesses in this industry are assigned to North American Industry Classification System (NAICS) code 7224 – Drinking Places (Alcoholic Beverages).

The “restaurants and other eating places” industry comprises establishments open to the public and are known as restaurants, cafes, lunch counters, and carryout shops. Most businesses in this industry are assigned to NAICS code 7225 – Restaurants and Other Eating Places 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 bill specifically excludes other establishments such as entertainment facilities, hotels and bed-and-breakfasts, and private cafeterias at offices, universities, or hospitals.

Finally, the deduction benefits the “mobile food services industry,” which is defined as “retailers primarily engaged in preparing and serving meals, snacks, or nonalcoholic beverages for immediate consumption from motorized vehicles or nonmotorized carts.” Most businesses in this industry are assigned to NAICS code 722330 – Mobile Food Service. The bill specifically excludes third-party delivery services and at-home meal or meal-kit delivery services.

In addition to meeting the definitions assigned by H.B. 20B-1004, bars, restaurants, and food trucks must be scheduled to file sales tax returns on a monthly basis, make taxable sales during the period for which the deduction is claimed, timely file a return and pay all state-administered local sales taxes, and report the deduction on a timely filed return while remitting any remaining state sales taxes due. Establishments may not claim the deduction for more than five physical reporting sites or mobile vending vehicles.

To learn more about eligibility or how to claim this special deduction, contact your BKD Trusted Advisor™ or submit the Contact Us form below.

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