Colorado Sales Tax – Contractor Supply Companies
Published: October 4th, 2019
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 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. The same applies when selling to charitable or other exempt organizations.
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 cover only city and perhaps county tax—not state-collected jurisdictions. You must receive and retain documentation evidencing why you exempted the sale.
If the contractor’s job is in Colorado Springs, for example, you may receive a permit showing sales tax paid for El Paso County only—not Colorado Springs. In that case, the City of Colorado Springs can assess you for the unpaid tax, plus interest and penalties.
Some contractors also operate as retailers and may legitimately purchase wholesale without sales tax. Again, you must obtain and keep a copy of their resale certificate as evidence for exempting the sale.
Another common mistake is failing to register with and collect city sales tax for the 70+ self-collecting home-rule cities in Colorado when you make deliveries into those cities. Generally, more than one delivery in a 12-month period is sufficient to establish “doing business” and trigger a licensing, collection, and remittance obligation.
As of June 1, 2019, you must collect for all state-collected jurisdictions—even if you only ship there and never set foot there physically. There is a $100,000 small retailer exemption, but for others this creates a significant compliance burden requiring nonphysical location site or branch IDs for reporting.
Please feel free to contact us with any questions. We’re here to help.
Sales Tax Colorado, LLC