Colorado sales and use tax is very complicated. If your business supplies contractors and construction related customers, you likely face some additional challenges.
Though there are many problematic sales and use tax issues impacting most businesses, the focus of this blog is on a few contractor specific issues.
A key principle that is commonly missed until audited is that contractors are commonly considered the “end user” or consumer of the materials they use in performing their construction related work. Mistakenly exempting contractors from sales tax can be very costly!
For you as a retailer, that means the contractor is the one who pays the sales tax. This is the case with some cities like Denver that don’t exempt the contractor even if they are doing work for the City and County of Denver itself. Same goes with charitable and other exempt organizations.
Though the Colorado State Department of Revenue may exempt a project and provide the contractor with a job-specific exemption certificate, the State’s exemption isn’t honored at all of the home-rule jurisdictions like Denver.
If you as a contractor supplier exempt the contractor in error, an auditor will assess you for the tax, interest and penalties. A contractor may provide a permit showing sales tax was paid, but this will be for city and perhaps county tax only. You’ll need to receive and keep a copy evidencing why you exempted the sales.
If the contractor’s job is in Colorado Springs for example, you may receive a permit with sales tax showing on it as paid, but it will be for El Paso County only, not Colorado Springs. Mistakes here are common and the City will assess you the sales tax, interest and penalties.
Some contractors are also retailers and they may legitimately buy from you at wholesale without sales tax. Again, receive and keep a copy of the resale certificate evidencing why you exempted the sale.
Another common mistake is not registering with and collecting city sales tax for 71 the home-rule cities in Colorado if you make deliveries into their city. Generally, more than one delivery in a 12 month period is sufficient to be considered as “doing business” in their city and thus having a requirement to license, collect and remit their sales tax directly to the city.
Colorado adopted destination sourcing as of June 1st, 2019. In brief, this change means state-wide collection of Colorado State-collected local jurisdictions’ and special districts’ sales tax.
Prior to the June 1st, Colorado State sales tax changes, retailers only had to collect sales tax for the state-collected jurisdictions they had in common with their customer. If your store was in Adams County and thus in the RTD and Cultural District, but your customer’s delivery point was in Jefferson County, you’d only collect what you had in common: The State, the RTD and the CD, not Jefferson County’s sales tax.
As of June 1s, 2019, you have to collect for all state-collected jurisdictions, even if you just ship there and never set foot there physically. There is a $100,000 small retailer exemption, but for others, this is a huge burden requiring nonphysical location site or branch ids for reporting.
Please feel free to contact us with any questions. We’re here to help. It’s what we do.
Alan Smith
Sales Tax Colorado, LLC