Guest Post: How to Save Money with the Utility Sales Tax Deduction January 22,2020

By Kelly Lynch, CPA, Henry + Horne

Utility Sales Tax Deduction

Did you know you can claim a deduction for sales tax paid on purchases of gas and electricity used in preparing food at your restaurant? In order to claim the deduction, sales tax must have been charged on all utility bills paid by the restaurant or its landlord. 

This deduction could be figured two ways, depending on your restaurant:

  1. If food sales exceed 25% of the total sales, a deduction based on 55% of the sales tax paid on gas and electric bills is allowed.
  2. If food sales are 25% or less, or if the restaurant is metered for gas and electricity as part of another business operation like a hotel, motel, bowling alley, etc., then the deduction is based on 1/2 of 1% of the total Colorado food sales for the restaurant.

"Food sales" include only sales of edible foods that are processed and sold for immediate consumption.  Sales of alcoholic beverages are excluded. 

The deduction is figured using one of the two methods mentioned above on Form DR 1465, Retail Food Established Computation Worksheet for Sales Tax Deduction for Gas and/or Electricity. The deduction then goes on the Colorado Retail Sales Tax Return (Form DR 0100).

This deduction is claimed once a year. If you file your sales tax on a monthly basis, Form DR 1465 can be filed with your January Sales Tax Form DR 0100 due in February 2020. If you file your sales tax quarterly, file the Form DR 1465 with your first quarter Sales Tax Form DR 0100. If you are a seasonal sales tax filer, submit it with the last sales tax return of the season.

Finally, please note that all cities, counties and districts where sales taxes are collected by the state are also 55% exempt under this deduction.

Enterprise Zone Credits

For restaurant owners with operations in a designated Colorado Enterprise Zone, additional tax benefits may be available in the form of income tax credits. These Enterprise Zones were created by the Colorado State Legislature to promote business expansion into economically disadvantaged regions, and because they are dollar-for-dollar tax credits, are significantly more valuable than your basic tax deductions. A few of these credits and their potential amounts are as follows:

  • Investment Tax Credit – up to 3% of equipment purchases
  • Job Training Tax Credit – 12% of qualified training expenses
  • New Employee Credit - $1,100 per net new employee
  • Employer Sponsored Health Insurance Credit - $1,000 per covered employee

In order to claim these credits, the business needs to be located in a designated enterprise zone and are required to pre-certify prior to the tax year in which they intend to conduct activities qualifying for a credit. The business also needs to certify that the activities were completed after the tax year concluded. These certifications are approved by the local Enterprise Zone Administrator and must be completed each year that a business intends to claim a credit.

For more information on the Colorado Enterprise Zone tax credits, or to determine if your restaurant is located in an Enterprise Zone, check out the official website. Eligibility for these credits and the process for claiming them can be complex, so we recommend working with an experienced tax professional to ensure proper documentation and filing requirements are met. For any questions on the utility sales tax deduction, Enterprise Zones, or other tax and accounting issues, please don’t hesitate to contact your Henry+Horne restaurant professional.

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