Sales and use tax in Colorado
Contractors have it tough in Colorado when it comes to handling sales and use tax issues such as:
- Exemptions from some local sales tax when a use tax deposit was paid with building permits and reconciliations afterwards. (Exempt from city and county both, just one or none?).
- A customer’s exempt status commonly not passing through to the contractor (the end-user).
- The state issuing an exemption doesn’t mean the home-rule cities will do the same.
- Lump sum vs. T&M billing problems when cabinetry, flooring, HVAC, etc. is considered the sale of Tangible Personal Property with an Install vs. Construction of Real Property.
- Equipment declarations with varying requirements and consequences if missed.
- Retailers and contractors that sell inventory and use some of it to perform construction work.
- Home-rule cities with no use tax: Cities such as Silverthorne and Breckenridge in Summit County don’t have a use tax so they cannot audit your customers for it. They aggressively collect sales tax, through audit, from building supply companies, etc. delivering to job sites in their cities.
So where is the Universal Design in all of this?
With 70 home-rule jurisdictions such as Denver, Colorado Springs, Aurora, etc., sales and use tax compliance in Colorado is anything but universal. They can and do differ from the State and from each other. However, there are some prior and current efforts toward universality and simplification in some areas:
The Colorado Department of Revenue’s recent launch of the SUTS one-stop remittance portal is one such significant outcome. It allows all filing of state and state-collected jurisdictions’ returns and all participating home-rule city returns.
Home-rule cities are still working on a Sales Tax Standard Definitions project.
Though not all towns and cities collect a use tax deposit (Denver doesn’t), all in Larimer and Boulder County have agreed to work together when it comes to collecting a use tax deposit with the issuance of a building permit. Get a City permit and you’ll have the County handled too. There may be others with such arrangements. If no use tax deposit is paid, don’t use the permit to get an exemption from city or county sales tax.
Be cautious when it comes to Colorado Springs and El Paso Counties. Though one agency handles both permits, only a county use tax deposit is collected. Make sure to pay city sales tax on materials or Colorado Springs will assess tax, interest and penalties if they come knocking.
Inter-city Claims for Refund: If you are audited by one home-rule city and are found to have paid a different city in error, they will work together to get the tax to the right city.
The home-rule cities have all adopted a “Standard Municipal Home Rule Affidavit of Exempt Sale” (Denver-branded example).
“Know before you go” when considering doing construction work or making sales into the various local jurisdictions in Colorado. Start with an address verification to find out what taxing jurisdictions the job site is in. Check for registration requirements and taxability of delivery charges.
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 that require such 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 Colorado’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.
Retailers, 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.”