The Colorado Legislature enacted a new bill on June 10, 2021 that extends the special deduction for restaurants, alcoholic beverage drinking places and mobile food service retailers. Previously, the special deduction applied for November, 2020 through February 2021. The new bill allows the deduction to also be taken for June, 2021 through August, 2021. In addition, the bill broadens eligibility for the program.
The bill expands eligibility for the deduction to the following businesses:
- Food Services Contractors
- Hotel Operated Restaurant, Bar, or Catering Service
Benefit to Businesses
A qualifying business still collects the normal sales tax from its customers but receives a deduction on its sales tax return from its Colorado taxable sales. It effectively allows the business to keep the state sales tax that was collected on those sales. The amount of the deduction is as follows:
Restaurant or Bar – A restaurant or bar can take a $70,000 deduction per location for up to five locations for each month from June, 2021 through August, 2021.
Caterer – A caterer is treated as having one location and can take a $70,000 deduction per month from June, 2021 through August, 2021.
Hotel Operated Restaurant, Bar or Catering Service – These businesses are allowed a deduction equivalent to the deduction for a restaurant, bar or catering service that is not hotel operated.
The extension of this sales tax benefit can provide significant benefits to qualifying businesses. For example, a restaurant business with five locations can receive a total deduction from its taxable sales of $1,050,000. This deduction would allow the business to keep $30,450 of sales tax it would otherwise need to remit to Colorado. Note that the deduction is only available for Colorado state tax purposes; not for county, local or special district taxes.
Connect with a WhippleWood CPA to learn more about how this new bill can impact your tax planning strategy.