Sales and use tax are complicated. Here are some tech tools that can help.
What taxing jurisdictions are your customers’ jobs located in? What are those jurisdictions’ sales tax rates? Can you rely upon the mailing addresses to know their tax jurisdiction? You paid sales tax, but do you owe more as use tax? How can you make filing sales and use tax returns simpler?
To help address the above questions, this article touches briefly upon a few technology resources:
- The Colorado Department of Revenue (DOR) Address Look-up tool
- The DOR’s new Sales and Use Tax System (SUTS) for filing state and participating home-rule jurisdiction returns
- Sales and use tax compliance software
Know before you go
Check your client’s jobsite address to see what jurisdictions’ sales or use tax may be due. However, mailing addresses often don’t reflect the true city. For example, a jobsite with a Denver mailing address may actually be unincorporated Adams County or one of the home-rule cities surrounding Denver. A Broomfield address might actually be in Westminster. This situation is common in the Front Range. The address look-up will also identify the correct county and any special districts with the tax rates for each. For sites with no address, the look-up tool can be used in map mode with pins placed to identify a site.
Using the SUTS portal
The DOR’s new SUTS portal is designed as a one-stop filing platform. You can file your Colorado State sales tax return and any participating home-rule jurisdictions’ sales or combined sales and use tax return through one spreadsheet upload. Note that the DOR requires a separate state use tax return to be filed elsewhere, and it will not show up on your Revenue Online account as due!
There are 70 home-rule cities in Colorado. Many have agreed to participate in the Colorado Department of Revenue’s SUTS System.
Implementing tax software
Though there are a number of sales and use tax compliance software systems available, many do not work for contractors’ situations, such as when a use tax deposit has been paid when pulling a permit. You will generally need to check with the software providers to see whether their system will meet your needs and integrate with your accounting system.
For a contractor that maintains inventory for sale but also performs construction services, you are considered a “Retailer-Contractor.” You have the responsibility to license and collect sales tax and to essentially keep a set of books for each operation. Ensuring accuracy and simplifying your sales tax collection process through technology can reduce audit risk and make life easier.
- When making retail sales with installation versus performing construction to improve real property (generally involving a building permit), use the GIS System for address verification. Plan to collect and remit for all applicable state-collected local jurisdictions and any home-rule jurisdictions even when you never set foot in their city. Typically, more than one delivery by company personnel or representatives within a 12 month period is also a trigger.
- 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.
- Provide your vendors with the home-rule city specific “Affidavit of Exempt Sale” in addition to your sales tax certificate when purchasing for resale.
- If you are selling to contractors claiming an exemption from sales tax, obtain the building permit showing city and/or county use tax was paid. If they claim it’s for resale, obtain the state and any applicable home-rule city specific resale certificate plus the “Affidavit of Exempt Sale.”
This is a very difficult area of tax. The above article just highlights some issues. We recommend that you ensure you have a proper understanding of the issues and your responsibilities as a contractor or “Retailer-Contractor.”