BIG SUR WATERBEDS, INC.; Denver Mattress Company, LLC; and Sofa Mart, LLC, Plaintiffs-Appellees,
CITY OF LAKEWOOD, Colorado; and Larry Dorr, in his official capacity as Finance Director of the City of Lakewood, Colorado, Defendants-Appellants.
[Copyrighted Material Omitted]
Jefferson County District Court No. 16CV30877, Honorable
Laura A. Tighe, Judge
& Pomerantz LLP, Neil I. Pomerantz, Mark E. Medina, Michelle
Bush, Denver, Colorado, for Plaintiffs-Appellees
Parker, Wilson & Carberry, P.C., M. Patrick Wilson, M. Keith
Martin, Denver, Colorado, for Defendants-Appellants
1] Plaintiffs, Big Sur Waterbeds, Inc., Denver
Mattress Co., LLC, and Sofa Mart, LLC, purchase furniture
(tax free) from wholesalers worldwide and resell it in stores
across the country, including in the City of Lakewood. At
each Lakewood store, plaintiffs provide a showroom in which
they display some furniture for customers to peruse and try
out. Plaintiffs also maintain warehouses, where they store
the bulk of their inventory. They ultimately sell all the
furniture— including the displayed furniture— and
fill customer orders from either the warehouses or the
showrooms. Plaintiffs customers pay Lakewoods sales tax on
2] Lakewood assessed use tax on plaintiffs
purchases of the displayed furniture from 2012 to 2015, on
the theory that plaintiffs purchased the displayed furniture
at retail for their own use in advertising their
products. Plaintiffs challenged the assessments in the
district court, which held a bench trial. They argued that,
like all the furniture they buy, they purchased the displayed
furniture at wholesale — that is, primarily
for resale— and thus those purchases were exempt from
use tax. Employing the "primary purpose" test from
A.B. Hirschfeld Press, Inc. v. City and County of
Denver, 806 P.2d 917, 918-26 (Colo. 1991), the court
agreed with plaintiffs and cancelled Lakewoods use tax
assessments. Addressing an issue of first impression, we also
conclude that plaintiffs purchased the displayed furniture
primarily for resale. Therefore, we affirm the judgment
cancelling the assessments.
Standard of Review
3] We review de novo a district courts
interpretation of a tax code. Leggett & Platt, Inc. v.
Ostrom, 251 P.3d 1135, 1140 (Colo.App. 2010). Generally,
when interpreting tax provisions, we resolve doubts in favor
of the taxpayer. Noble Energy, Inc. v. Colo. Dept of
Revenue, 232 P.3d 293, 296 (Colo.App. 2010). When a
taxpayer claims a statutory exemption from taxation, however,
we presume that taxation is the rule and resolve doubts in
favor of the taxing authority. Id.
4] "Following a bench trial, we defer to a
trial courts factual findings unless they are so clearly
erroneous as to find no support in the record."
Target Corp. v. Prestige Maint. USA, Ltd., 2013 COA
12, ¶ 24, 351 P.3d 493.
Lakewoods Code and Regulations
5] Lakewoods municipal code imposes a three percent
use tax "for the privilege of storing, using, or
consuming in the City any articles of tangible personal
property or taxable
services purchased at retail ." Lakewood Mun.
Code 3.01.210 (emphasis added). The use tax does not apply if
the purchaser has already paid sales tax on the item, either
to Lakewood or to another municipality, in an amount equal to
or greater than the amount of Lakewoods tax. Id. at
6] "Retail sale" is defined as "all
sales except wholesale sales made within the city."
Id. at 3.01.020. A "[w]holesale sale" is
"a sale by wholesalers to retail merchants, jobbers,
dealers, or other wholesalers for resale and does not include
a sale by wholesalers to users or consumers not for
7] Consistent with the definitions of retail sale
and wholesale sale, the code also expressly exempts from use
tax "the storage, use, or consumption of any tangible
personal property purchased for resale in the city, either in
its original form or as an ingredient of a manufactured or
compounded product, in the regular course of a
business." Id. at 3.01.230(B).
8] Lakewoods sales and use tax regulations supply
guidance on interpreting the code. See id. at
3.01.070 ("The City Council shall adopt rules and
regulations in conformity with this chapter for the proper
administration and enforcement of this chapter."). One
such regulation explains that "[u]se tax is a complement
to sales tax." Lakewood Sales and Use Tax Reg.
3.01.300(1)(b) (adopted June 24, 1985),
https://perma.cc/2LGV-L4B7. Because sales tax is
imposed only on retail sales, which are sales to the user or
consumer of property or services sold, "use tax shall
not apply to the storage, use[,] or consumption of tangible
personal property purchased by a licensed retailer for resale
within the regular course of a business." Id.
9] Regulation 3.01.300(1)(b) also cautions, however,
[t]angible personal property that was purchased tax-free for
resale or as an ingredient of a manufactured or compounded
product and subsequently withdrawn from stock for the
purchasers own use or consumption shall be taxed at the
acquisition cost of all materials. The tax liability attaches
at the time that the tangible personal property is withdrawn
Id. (emphasis added).
10] In addition, a special regulation entitled
"Initial Use of Property" states:
Any item purchased for use or consumption by the purchaser is
subject to sales or use tax at the time of purchase, even
though the item shall be resold later in either its original
or altered form. A tax-free purchase is taxable in full at
the first time it is used by the purchaser for a nonexempt
(Example: A junkman may not buy a new car tax-free under the
theory that the car is going to be junked someday and resold
through his business for scrap.)
Lakewood Sales and Use Tax Special Regs., at 41.
Purchased "At Retail" or "At Wholesale?"
11] Lakewood contends that plaintiffs "initial
purchase and subsequent use of display furniture is a taxable
event." According to Lakewood, "all of
[plaintiffs] inventory purchases were initially treated as
exempt wholesale purchases for resale." But