Sales Tax Articles
Sales Tax State Activity Update - September 2008
Colorado Issues Manufacturing Exemption FYI PDQ for Review ASAP!
The Colorado Department of Revenue has issued a FYI updating its guidance on the manufacturing equipment exemption. Revised July 2008, the guidance explains the exemption on manufacturing machinery, machine tools or parts for such machinery, production of electricity and enterprise zones.
To qualify for machinery, machine tools or its parts, it must;
- Be used in Colorado
- Be used directly and predominantly to manufacture tangible personal property for sale or profit
- Be of a nature that would have qualified for the federal investment tax credit under the definition of section 38 property found in the Internal Revenue Code of 1954. This includes tangible personal property with a useful life of one year or more and limits qualifying purchases of used equipment to a maximum of $150,000 annually
- Be included on a purchase order or invoice totaling more than $500
- Be capitalized.
The exemption is also extended to the use of manufacturing machinery, machine tools or parts for such machinery in the production of electricity. To qualify, the electricity provider and the power producer must have at least a ten-year purchase agreement between February 5, 2001 and November 7, 2006. The exemption is not limited to the production of electricity and is also applicable to the renewable energy source. Additionally, machinery used in the enterprise zone is broader. However, if it is used outside the enterprise zone then it is only exempt on the state level.
To claim exemption, Form DR 1191 "Sales Tax Exemption on Purchases of Machinery and Machine Tools" must be completed. Provide a copy to the seller as well as one to the Department of Revenue. Please note that the exemption can only be claimed when the order/invoice is more then $500 per purchase. If the taxpayer makes more then 100 purchases per year, then they can fill out Form DR 1192 to avoid filling out Form DR1191 for each of its purchases every time.
The full guidance may be accessed at The Colorado Department of Revenue Web site.
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