What is the Colorado utility tax credit?
Colorado restaurant operators can claim a state sales tax credit for the amount of gas & electricity used in the course of operating a restaurant. This credit is entered as a deduction on the CO Tax Return, Schedule A, line 9 which reduces the taxable sales for that filing period. There are two methods in which a restaurant operator may use to calculate the amount of deduction used.
Either method may be used if the restaurant’s total food sales (not including liquor) exceed 25% of total sales revenue. *Note: Food sales include any food processed and sold for immediate consumption. If a restaurant’s total food sales are 25% or less of total sales revenue the credit would be calculated using method two.
Method 1: On form DR 1465, enter each month’s cost of gas and electricity used minus sales tax applied to the bill. Grand total of line 3 on method one, will then be multiplied by 0.55 for the total deduction.
Method 2: On form DR 1465, enter total sales for the year on line 1. Next enter only processed food sales (not including liquor sales) for immediate consumption during the calendar year on line 2. This total will then be multiplied by 0.005 for the total deduction amount for line 3.
What is the rollout timing?
This credit is taken on an annual basis, filed on the January state sales tax return, for the previous calendar year.
What is my actual tax savings based on each method?
Method 1: Cost of gas & electric is $10,000 per month after sales tax is removed, the total deduction for the state sales tax filing is $66,000. ($120,000 total cost for year * 0.55= $66,000). The total sales tax savings on this deduction would be $1,914. ($66,000 * 2.9% state sales tax rate= $1,914).
Method 2: Total sales for the year on line 1 is for informational purposes. The total deduction for the state sales tax filing is $1,250. (Total processed food sales for year $250,000 * 0.005= $1,250) The total sales tax savings on this deduction would be $36.25. ($1,250 * 2.9% state sales tax rate= $36.25).
How can RASI assist?
In order for a restaurant to take full advantage of this credit, please send in a DR 1465 form, with method 1 or method 2 deduction calculation completed with the previous calendar years information to your RASI Tax Specialist at the beginning of each year. Your tax specialist will apply this deduction to the January state sales tax filing & remit the DR 1465 form to the department of revenue.
If you have any questions please do not hesitate in reaching out to your RASI Tax Department.