How many home rule jurisdictions are in Colorado?
Many Colorado municipalities have opted for “home rule” status, where they choose to be governed by their own rules when it comes to local matters, like sales tax, rather than state law. Here are some tips for working as a contractor in a home rule jurisdiction, using Denver as an example:
• Get licensed with Denver. If you don’t, they will likely find you. It will be expensive when they do with tax and penalties, plus interest at 1% per month over a 36-month audit.
• Before approving a subcontractor, get documented proof that they are licensed in Denver.
• Denver does not collect use tax on its building permits, and the contractor is deemed the end user of the materials purchased. You must pay sales tax at the time of purchase.
• If your job is in another jurisdiction that does have use tax paid on its permits, do your Denver vendor a favor and have a copy of your permit available at the time of purchase. They need it for their records, or they will have to charge you sales tax.
• Your work on an exempt organization or for the government does not exempt you from paying Denver’s sales taxes on materials or paying an equivalent rate from another municipality (or use tax for the rate difference if less than Denver’s rate).
• You cannot get around paying sales taxes on materials by having your exempt customer purchase the materials.
• A contractor’s exemption certificate from an exempt organization or the Colorado Department of Revenue is valid only for state and state-collected taxes, not Denver taxes.
• Denver does not have a temporary storage exemption. If you do not have your building permit in another jurisdiction showing use taxes paid, do not buy materials yet.
• Keep your books in good order by job number.
• If under audit, more information is better. Do not play games with the auditor. Get them information as quickly and completely as possible the first time. The more complete the information, the quicker the audit will be over.
• Communication is key and they want to educate you. If you have questions, ask. They will happily provide you with official guidance.
• Be nice. Don’t take it personally. You have a job to do and so do they.
• Outside of Denver, several municipalities conduct “reverse audits” on construction companies to make sure they have paid sufficient taxes on their permits. If you make it part of your record keeping to track the estimated taxes paid against actual materials purchased and complete your reconciliation at the end of jobs, oftentimes there can be significant refunds available on large jobs. Don’t leave money on the government’s table if you don’t have to.