Colorado Explains that Layaway Fees Are Not Subject to Sales Tax.

Thursday, May 31st, 2012


The Colorado Department of Revenue recently issued guidance regarding the taxability of layaway service and cancellation fees. Colo. Gen. Info. Ltr. No. GIL-12-3 (Dept. of Revenue Feb. 29, 2012).

In this guidance, the DOR considered the following scenario: A Colorado retailer offers a layaway program to its customers. As part of the layaway program, customers are charged an initial service fee and must pay 10% down on their total purchase at the start of the program. In the event that the customer cancels their layaway purchase, the retailer will return the down payment plus any additional payments made towards the purchase to the customer. The retailer does not return the initial service fee and charges the customer an additional cancellation fee.

Colorado imposes sales tax on the sale of tangible personal property and certain taxable services. Colo. Rev. Stat. sec. 39-26-104. Sales tax does not generally apply to most services or finance fees. 1 Colo. Code Regs. 201-4:39-26-102.7(a)(4). Finance fees do not represent a sale and transfer of tangible personal property. Therefore, the initial layaway service fee will not be subject to tax. Similarly, a cancellation fee is not taxable because a transfer of taxable tangible personal property has not taken place. The cancellation fee is imposed only if a sale of tangible personal property is not completed between the customer and the retailer.

About TTR

Transaction (buying or selling things), Tax (the tax on this activity), Resources (our people, our website, our support services) - TTR, Inc.

TTR has a website that companies subscribe to and use daily. This website provides a list of everything that can be bought or sold in the U.S. It provides simple answers to whether buying or selling these items is taxable (subject to a sales tax or other tax), and it provides all the legal authority to support these tax answers.

TTR likes to keep things simple and fun, which is why it has great people who provide help to clients on any support questions they have about transaction tax issues.

Please visit TTR on the web at or call 866.578.8193.

Economic Nexus in Washington

Monday, August 13th, 2018 -Effective October 1, 2018, certain out-of-state businesses will be required to collect and pay Washington sale...

Economic Nexus in Michigan

Thursday, August 9th, 2018 -Effective October 1, 2018, certain out-of-state sellers will be required to collect and pay Michigan sales or ...

Georgia Suspends Tax on Jet Fuel

Wednesday, August 8th, 2018 -Effective August 1, 2018, Georgia no longer collects state level sales and use tax on jet fuel. Georgia tax...

Employment Services Contracts for Permanent Employees Not...

Monday, August 6th, 2018 -The Ohio Board of Tax Appeals recently addressed whether contracts entered into by an employment services agen...

Alarm Systems and Monitoring Not Taxable in Missouri

Wednesday, August 1st, 2018 -The Missouri Department of Revenue recently released a ruling determining that (1) security, fire, tornado, an...

Economic Nexus in Utah

Wednesday, August 1st, 2018 -Effective January 1, 2019, certain out-of-state sellers will be required to collect and pay Utah sales or use ...