Colorado’s HB 26-1223 makes targeted but meaningful changes to the state’s sales and use tax exemptions, simultaneously narrowing relief in one area while expanding the tax base in another.
On the relief side, the bill enacts a tiered exemption and credit for gas and electricity used in processing prepared food. The provision is temporary, running from its start date through June 30, 2046. One caution on timing: the operative language of the prepared-food provision states that it begins July 1, 2026, but the bill’s applicability clause provides that this section, together with the software changes, applies to the sale, storage, use, and consumption of tangible personal property on or after January 1, 2027. Because gas and electricity are tangible personal property, the effective date is not entirely free from doubt and may warrant confirmation through Department of Revenue guidance.
Rather than creating a new “food retailer” category, the statute ties eligibility to existing law, effectively covering retailers that sell qualifying food or drink and then differentiating them based on prepared food activity. Retailers whose prepared food sales exceed 25% of total revenue may claim a full exemption on gas and electricity purchases, while those at or below that threshold receive a credit equal to 0.5% of prepared food sales. The structure favors operations with a higher share of prepared-food sales. Most retailers claim the credit for the prior calendar year on their January return, while seasonal retailers claim on their June return.
As a practical matter, retailers will need to track the share of revenue derived from prepared food to determine which tier applies, though the bill’s own annual reporting obligation runs to the Department of Revenue rather than to taxpayers. (Colorado H.B. 26-1223, 75th General Assembly, enacted 2026, effective July 1, 2026)