Colorado has issued a general letter ruling regarding the taxability of advance payments made on vehicle rentals. Although there is not specific provisions in the statutes regarding these charges for vehicle rentals, there is for hotel occupancy rentals. The Department has indicated that these rentals are similar in nature and therefore, following the occupancy provisions seems appropriate.
Any advance payment applied toward the charge for a vehicle rental is subject to sales and use tax. The letter ruling states that any nonrefundable advance payment that exceeds 50% of the daily rental charge is subject to tax, which may be collected at the time the payment is made. Nonrefundable advance payments are subject to sales and use tax either in their application toward the charge for the ultimate vehicle rental or as a forfeited deposit if the vehicle rental is canceled, either by explicit cancellation or by failure to appear at the designated time. Sales and use tax should not be collected for a refundable advance payment or an advanced payment that is 50% or less of the daily vehicle rental charge. If a refundable advance payment is refunded due to cancellation, no tax is due and any collected tax should be refunded.(GIL-16-011, Colorado Department of Revenue, July 6, 2016)