Avoiding additional use tax with equipment declarations

Jobsites in different jurisdictions may result in unforeseen taxes or audits
If the equipment was previously purchased and delivered to an unincorporated county area or into a city with a lower tax rate, use tax on a difference may be due. (Photo: Lukasz Jaskowiak, Dreamstime.com)

As a contractor, you probably use and move equipment around in multiple home-rule cities in Colorado. There is an important but often missed issue for consideration: equipment declarations.

Equipment declarations are city forms or returns that are typically required on or before the date the equipment is brought into a city for a project. Periodic updates may be required depending upon the length of time at the project site.

Why are they required?

Cities want to assess use tax on the equipment if the contractor didn’t already pay an equivalent tax to another jurisdiction. 

If the equipment was previously purchased and delivered to an unincorporated county area or into a city with a lower tax rate, use tax on the difference may be due.

[Related: 4 sales tax traps for Colorado businesses]

What are the benefits?

If an equipment declaration is filed when required, the contractor may receive the benefit of a proration of the tax due. Credit is also given for lawfully imposed tax paid to other comparable jurisdictions.

What if they aren’t filed?

Absent a timely filed equipment declaration, proration provision may be forfeited and contractors should expect a tax assessment on 100% of the equipment’s value. Late filings may also be subject to penalty and interest.

Equipment declarations in action

Construction equipment that was not otherwise subjected to the Commerce City sales or use tax, and which is located within the boundaries of the City of Commerce City for a period of 30 consecutive days or less, are subject to Commerce City use tax on a prorated basis only if the equipment is declared in advance. If the equipment is not declared in advance or is located within the City for over 30 consecutive days, the amount of tax due will be calculated on 100% of the original purchase price.

A $200,000 piece of equipment purchased and delivered to the contractor in unincorporated Weld County would not have any city or county sales tax charged since there is no applicable city and Weld County doesn’t have a sales tax. This can be seen as an advantageous location for a contractor.

[Related: Affordable housingSales and use tax complications]

However, when that equipment is brought into Commerce City without an equipment declaration filed, Commerce City’s 4.5% use tax rate results in a $9,000 tax assessment before interest and penalties.

Subsequent audits of the project or the contractor and any subs may result in an assessment for the unpaid tax, interest and penalties.

Equipment declarations are just one of the common issues and pitfalls to be considered when doing construction work in various jurisdictions in Colorado. Properly understanding the state’s requirements, plus county- and city-specific requirements, prior to choosing a development site or bidding on a project will bode well for all parties involved.

We advise presuming that all home-rule cities require and equipment declaration, unless determined otherwise.

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