Food for Thought in Colorado

Jackie McCallum
March 30, 2016

The taxability of food products is one of the most complicated sales and use tax issues for vendors and can be equally perplexing for customers. However, in 2010 the legislation made an already complex issue even more so. Prior to the legislative action in 2010, the state of Colorado followed the federal SNAP program definition of food, with some specific carve outs from the definition for items such as chewing gum and carbonated water. Cities, counties, and districts, whether or not state administered, were allowed to decide if they wanted to tax food or not. Background on Beverages in Colorado However, if these jurisdictions exempted food, they were required to follow the state definition. The 2010 legislation provided a carve out for candy and soft drinks. This carve out, unlike the ones for carbonated water and chewing gum referenced previously, was created as an addendum to the exemption for food for home consumption and was never included as part of the definition. This left the cities, counties and districts still required to follow the unchanged definition of food for home consumption while allowing the State of Colorado to tax those items. The exclusion from the exemption was expanded in 2014 to include the Regional Transportation District and the Scientific and Cultural district. Candy and soft drinks were separately defined to follow the same definition as the streamlined sales tax states. This provided some consistency with other states. However, there is no consistence on the local level. Cities that exempt food for example are still required to tax carbonated water, but are precluded from taxing soft drinks. The issue has been exacerbated with time. When the law was initially passed it was considered pretty clear that the expanded ability to tax candy and soft drinks was limited to the state. The Current State of Candy and Soft Drinks in Colorado However, since this law’s passage, the changes to the informational materials provided by the state have failed to specifically address the issue of the local taxability of candy and soft drinks. This is likely a result of the state attempting to simplify its guidance materials to make them more usable by the general public. Yet, this leads many not familiar with the history of the legislation to assume that state administered jurisdictions that follow the state and exempt most food also follow the state and tax candy and soft drinks. Additionally, several self-administered cities have tested the waters so to speak since this law went into place and have added laws, which allows for the taxation of candy and soft drinks in their jurisdictions. Thus, far nothing has indicated that anyone has taken any action to restrict this expansion, which creates an interesting compliance issue. All said and done, the state of Colorado and the RTD/CD tax candy and soft drinks. So do any jurisdictions which tax food. For those jurisdictions that exempt food other than the state and the RTD/CD most still exempt candy and soft drinks. But, a handful of self-administered cities are following the state and taxing candy and soft drinks although they exempt food. Kind of a different outcome than one generally would expect, but it is Colorado after all!

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