Colorado sales tax relief for restaurants, bars, and mobile food vendors

Restaurants and bars in many states are struggling to stay solvent in the face of on-going capacity caps and mandatory closures instituted to slow the spread of COVID-19. As they did when the pandemic first shuttered businesses last spring, some states are once again providing sales tax relief to support affected retailers.

Colorado is offering a special limited state sales tax deduction for the November 2020, December 2020, January 2021, and February 2021 tax periods. Qualifying bars, restaurants, and mobile food vendors must collect all applicable state and state-administered local sales taxes and file returns but may retain and spend the portion of the collected state sales tax allowed under House Bill 20B-1004.

For businesses with fixed physical locations, the allowable deduction is the lesser of state net taxable sales or $70,000 per licensed fixed physical premises. For mobile food vendors, the allowable deduction is the lesser of aggregate state net taxable sales for all sites or $70,000 per motorized vehicle or nonmotorized cart.

The following businesses are eligible for the temporary sales tax deduction, provided certain other requirements are met:

• “Alcoholic beverage drinking places” such as bars, brew pubs, distillery pubs, nightclubs, sales rooms, taverns, and vintner’s restaurants (but not breweries, distilleries, wineries, and retail liquor or drug stores offering tastings)
• Restaurants and other eating places such as cafes, carryout shops, lunch counters, and restaurants (but not bed-and-breakfast establishments or hotels, caterers or other food service contractors, entertainment facilities, private cafeterias, or specialty food stores)
• Retailers in the mobile food services industry such as food trucks, ice-cream trucks, or nonmotorized carts like hot dog or pretzel carts (but not retailers delivering food prepared by third parties or retailers shipping meal kits, heat-at-home meals, or other unprepared food to consumers for home consumption)

To claim the allowed deduction, the above retailers must:

• File sales tax returns on a monthly basis
• File returns and pay all state-administered local sales taxes on time
• Make sales to customers at one or more permanent places of business in Colorado (except qualifying mobile food service businesses)
• Make taxable sales during the period for which the special deduction is claimed
• Report the special deduction as required on a timely filed return and pay any remaining state sales taxes due on time

Alcoholic beverage drinking places, restaurants, and other eating places may not deduct taxes collected on delivery sales. Those with multiple physical reporting sites may claim this special deduction for any five physical reporting sites only. See the Colorado Department of Revenue Restaurant & Bar Special Sales Tax Deduction Instructions for more information.

For mobile food vendors, the special deduction is available for up to five motorized vehicles or nonmotorized carts. Mobile food vendors that also operate a restaurant should exclude sales from physical reporting sites when claiming the deduction for mobile food vendors. However, those sales may be eligible for special deduction under the program for restaurants and bars (see above). The Colorado Department of Revenue Mobile Food Vendor Special Sales Tax Deduction page provides more details.

Qualifying businesses that didn’t claim the deduction for the November reporting period may apply to the Colorado Department of Revenue for a refund. It may take up to six weeks for the refund to be processed. Additional information.

State-collected local sales taxes don’t qualify for the deduction and must be remitted as normal: The Colorado Department of Revenue notes that this special deduction doesn’t apply “to any taxes imposed by state-administered city, county, or special district.”

That said, self-collecting home-rule cities may provide additional relief. They should be contacted directly for information about local programs.

Businesses that don’t qualify for the relief provided under HB20B-1004 may be eligible for other relief. For information, see the Colorado Office of Economic Development and International Trade’s COVID-19 Business Resource Center.

For more information about worldwide tax relief related to the pandemic, see our COVID-19 tax news and resource hub.