If you run a restaurant, food truck, brewery, or catering business in Colorado, the state is about to hand you back money you're already collecting from customers — you just have to know it exists and account for it correctly.
On June 4, 2026, Colorado's governor signed HB26-1223 into law, and buried inside a broader package of tax changes is a targeted break for food and drink retailers: for July, August, November, and December of 2027 and 2028, qualifying restaurants get to deduct the lesser of their state net taxable sales or $14,000 from what they owe the state in sales tax. Separately, starting July 1, 2026, restaurants that sell a lot of prepared food get an ongoing exemption on the sales tax they pay for gas and electricity. Smaller-volume food sellers get a flat credit instead.
None of this shows up automatically on your books. Point-of-sale systems don't know your legislature passed a new deduction, and your accountant won't catch it unless someone flags it. Here's what the law actually does, who qualifies, and how to make sure you don't leave it on the table — or worse, misclassify it and create a bigger headache at tax time.
Why Colorado Picked These Four Months
July, August, November, and December aren't random. For a lot of Colorado's food-and-drink industry, they bracket the gap between the two big tourist seasons — the summer rush winds down after August, and the holiday bump doesn't really start until mid-December. Restaurants in ski towns and college towns in particular see a real trough in the shoulder months, when fixed costs (rent, payroll, insurance) don't move but revenue does.
The bill's sponsors framed the broader package — which also creates a new refundable child tax credit and closes a sales tax exemption on downloaded software — as a response to federal tax changes they argued favored large corporations over working families and small businesses. State Senator Dylan Roberts, one of the bill's sponsors, described the restaurant provisions as giving the industry "a much-needed boost by relieving them of sales tax burdens." The legislature didn't publish a detailed economic study specific to restaurants alongside the bill, but the timing — targeting the two slowest stretches of the year — makes the intent clear enough: smooth out cash flow during the months restaurants are most exposed.
This isn't Colorado's first time doing something like this, either. During the pandemic, the state ran a similar "retain your own sales tax" program for a few months in 2020 and again in 2022, letting restaurants keep the state sales tax on up to $70,000 of monthly sales. HB26-1223 is a smaller, more targeted version of that same idea, aimed specifically at the two slow seasons rather than a blanket relief period — restaurant sales-tax retention has become something of a recurring tool in the state's playbook rather than a one-time pandemic measure.
What Actually Qualifies
HB26-1223 creates two separate benefits, and it's easy to conflate them, so keep them straight.
1. The seasonal $14,000 deduction (2027–2028 only). For each of July, August, November, and December in 2027 and 2028 — eight months total, spread across two years — a qualifying food or drink retailer can deduct from state net taxable sales the lesser of their actual net taxable sales for that month or $14,000. In practice, that means:
- If your net taxable sales for the month are under $14,000, you owe no state sales tax on that month's food and drink sales.
- If your net taxable sales exceed $14,000, you still get to deduct the first $14,000 — so you're paying state sales tax only on the amount above that threshold.
At Colorado's 2.9% state sales tax rate, the maximum benefit works out to roughly $406 per qualifying month ($14,000 × 2.9%), or up to about $3,248 total across all eight qualifying months if your slow-month sales consistently clear the threshold. Small operators whose slow-month sales fall under $14,000 effectively get those months state-sales-tax-free.
2. The prepared-food utility exemption (starts July 1, 2026 — ongoing). This one starts sooner and doesn't expire in 2028. It splits retailers into two tiers based on how much of their revenue comes from prepared food:
- High-volume prepared food retailers — more than 25% of sales from prepared food — get a 100% exemption on the sales tax they'd otherwise pay on gas and electricity purchased for the business.
- Lower-volume retailers — 25% or less of sales from prepared food — instead get a credit equal to 0.5% of prepared food sales revenue.
Utility costs are one of the least controllable line items for a commercial kitchen — you can't exactly turn off the walk-in cooler during a slow month — so this piece matters even outside the four seasonal months, and it applies year-round starting mid-2026.
Note that the law doesn't spell out a bright-line statutory definition of "prepared food" or "food or drink retailer" in the plain text of the bill itself; it leans on Colorado's existing sales tax code definitions. If you're near the 25% threshold, or you run a hybrid business (say, a grocery store with a small hot-food counter, or a brewery that does light food service), that's worth a specific conversation with a Colorado sales tax professional rather than guessing.
How to Actually Claim It — Don't Wait for Your Software to Catch Up
Unlike a federal deduction you claim once a year, this is a monthly sales tax filing adjustment. A few practical points:
- It isn't automatic. Your point-of-sale system will faithfully calculate and collect sales tax at the standard rate on every transaction — it has no idea Colorado passed this deduction. The retention/deduction gets applied on the state sales tax return you file, not at the register. That means someone (you, your bookkeeper, or your accountant) has to remember to apply it every qualifying month.
- Watch your effective dates. The utility exemption/credit starts July 1, 2026 — that's this year. The $14,000 seasonal deduction doesn't kick in until July 2027. Don't try to claim the seasonal deduction on a 2026 return; it isn't available yet.
- Keep the math auditable. For the seasonal deduction, you need clean net taxable sales figures broken out by month to prove which side of the $14,000 line you fell on. For the utility exemption, you need your prepared-food sales percentage documented and your gas/electric invoices tied to the business, not blended with any personal or unrelated-entity usage.
- This is a state-level break. It reduces what you owe on the state sales tax return; it doesn't touch city or county sales tax, which in Colorado's home-rule municipalities is often collected and filed separately. Don't assume your Denver, Boulder, or Aspen local tax bill shrinks too.
Why This Is a Bookkeeping Problem, Not Just a Tax Problem
The restaurants that actually capture this benefit will be the ones whose books already separate net taxable sales cleanly by month and by category — food vs. beverage, prepared vs. unprepared, and utility costs isolated to the business rather than lumped into a general "overhead" bucket. If your sales tax filings are reconstructed at quarter-end from a pile of POS exports, you're much more likely to miss a seasonal deduction that only applies to specific months two years from now, or to misjudge which side of the 25% prepared-food threshold you're on.
This is exactly the kind of provision that plain-text accounting handles well: because your ledger is version-controlled, human-readable text rather than a black box, you can tag transactions by month, by revenue category, and by tax treatment as you go — and actually query "what were my net taxable sales in November" or "what percentage of revenue came from prepared food" with a script instead of reconstructing it by hand when the filing deadline hits. Beancount.io gives restaurants and other small businesses that kind of transparent, auditable ledger for free, so provisions like HB26-1223's seasonal deduction don't get lost between now and 2027. Get started for free and see how plain-text accounting keeps you ready for tax breaks like this one.