Builders who are expanding their business into more local jurisdictions in Colorado will have to deal with more sales and use tax compliance issues. Colorado is one of the most complicated states for sales and use tax compliance, and construction is one of the most complicated industries.
New job site locations may mean more:
- Licensing with home-rule cities
- Separate or combined permits and/or use tax deposits for cities and counties
- Building permits with or without use tax deposits
- Differences in what is considered “construction” or “improvements to real property”
- Differences in what is included under the permit. For example, appliances, cabinetry, replacement HVAC units, some types of flooring and other products may be considered as the sale of tangible personal property and excluded from the valuation for permits.
- Varied equipment declaration and reconciliation requirements
Some key points for builders include to “know before you go.” When obtaining a new client or bidding on a project, we recommend using the Department of Revenue’s Address Verification tool to determine the applicable jurisdictions. Mailing addresses are not sufficient. For sites with no address, the look-up tool can be used in map mode with pins placed to identify a site. Check with the applicable cities and counties regarding their construction and permit requirements.
There are 70 home-rule cities in Colorado. The Colorado Department of Revenue’s DR 1002 form lists the various state-collected local jurisdictions including counties, towns and cities, and special districts. The DR 1002 is updated twice a year, so visit tax.colorado.gov (or click if you’re reading the digital edition) and click on the Printable/Downloadable Forms tab for the latest version.
When making retail sales with installation versus performing construction to improve real property (generally involving a building permit), use the state-sponsored GIS System for address verification. Plan to collect and remit for all applicable state-collected local jurisdictions and any home-rule jurisdictions that requirement such, even when you never set foot in their city.
Even prior to the Wayfair case and economic nexus, making more than one delivery by company personnel or representatives within a 12 month period was a trigger for being considered as “engaged in business” or “doing business” in home-rule cities.
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 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. This 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-contactor.
What if you haven’t been handling it properly?
Voluntary disclosure agreements are a great way to resolve prior liabilities. Alternatively, audit assessments for tax, interest and penalties are often a high cost of tuition.