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TR 13: Construction and Contractors

The new Boulder Online Tax System is live!

You can now file your Construction Reconciliations Online

 

 

 

Permitted Projects

A contractor, defined at subsection 1-2-1(b) BRC, 1981, generally means any person, other than an employee of the real property owner or lessee, who performs work on a construction project.  The Boulder Revised Code (Code) defines "construction project" at section 3-1-1 as:

"Construction project means the erection, installation, alteration, repair, or remodeling of a building or structure upon real estate and any other activity for which a building permit is required under this code or any other ordinance of the city."

Person Responsible for Use Tax: The person responsible for obtaining a construction or building permit is liable for all use taxes due on construction materials and other tangible property and taxable services used in the city.  The “responsible person,” defined in the Code at 3-1-1, means (a) the contractor responsible for the construction of a permitted project, or (b) the contractor responsible for construction for a federal, state, or local government that is not required to get a permit from the city, or (c) if no contractor is used for a permitted project, the homeowner receiving a permit from the city to build or make improvements to the homeowner’s personal residence.

By this definition, the person responsible for paying the tax is the consumer of construction materials and supplies used in the construction project.  A responsible person may not avoid the payment of the sales/use tax by use of provisions in the construction agreement or by use of a tax-exempt entity on any invoice or purchase order.  The contractor is the responsible party even if the contractor is not named as the agent of such tax-exempt entity.  No exemption certificate issued by the Colorado Department of Revenue or any other taxing authority will be recognized as a basis for exemption from Boulder sales/use tax. Therefore, all construction materials used in Boulder are subject to Boulder sales/use tax.

Tax on Construction Materials: The use tax credit for taxes paid to other municipalities set forth in subsection 3-2-9(b) of the Code does not apply to sales tax paid on construction materials.  The Code defines "construction materials" at section 3-1-1as:

"Construction materials means tangible personal property which, when combined with other tangible personal property, loses its identity to become an integral and inseparable part of a completed structure or project. Construction materials include, without limitation, such things as: asphalt, bricks, builders' hardware, caulking materials, cement, concrete, conduit, electric wiring and connections, fireplace inserts, electrical heating and cooling equipment, flooring, glass, gravel, insulation, lath, lead, lime, lumber, macadam, millwork, mortar, oil, paint, piping, pipe valves and pipe fittings, plaster, plumbing fixtures, putty reinforcing mesh, road base, roofing, sand, sanitary sewer pipe, sheet metal, site lighting, steel, stone, stucco, tile, trees, shrubs and other landscaping materials, wall board, wall coping, wall paper, weather stripping, wire netting and screen, water mains and meters, and wood preserver. The above materials, when used for forms, or other items which do not remain as an integral or inseparable part of a completed structure or project, are not construction materials."

Construction material use tax for construction projects, other than projects done specifically under contract with the City of Boulder, may be paid in the following ways: (subsection 3-2-14(a) , BRC, 1981)

1.   Prepayment of the tax by either the responsible person, or separately by a subcontractor electing to do so, at the time a building or right of way permit is issued, on the estimated percentage basis, based on a percentage of the total valuation of the construction contract determined in subsection 4-20-4(d) of the Code, “Building Contractor License, Building Permit Fees, and Payment of Estimated Use Tax;” or

2.   Prepayment of the tax directly to the city by a contractor that is doing a project that does not require a city permit  because the project is being done for a federal, state, or local government; or

3.   Filing a use tax return on a monthly or other basis approved by the city manager under subsection 3-2-15(d) of the Code, and payment of the tax by the twentieth day of each reporting period for the previous reporting period after obtaining a sales and use tax business license; or

4.   Payment of the tax directly to a retailer that has a sales and use tax business license from the city.  This option cannot be used when tax is prepaid in accordance with subparagraphs 3-2-14(a)(1) or (a)(2) , BRC, 1981.

Tax on Tangible Personal Property (Non-Construction Materials): All tangible personal property used in the City of  Boulder, regardless if it is construction materials or not, is subject to Boulder sales and use tax.  Tangible personal property that 1) does not become a permanent part of the real property; and 2) can be removed without causing significant damage to the realty; and 3) can be removed without altering the intended functional use of the structure are not considered construction material, but this property is still subject to sales and use tax.  Examples of this property are appliances, custom cabinets, carpeting, removable countertops, patio covers, and other similar items.

Other items purchased for use at the job site that are not construction materials include but are not limited to tools, portable toilets, temporary offices, office supplies, office equipment, hay bails, temporary fencing and signs, temporary walls, barriers, safety equipment, rental equipment, food and other similar items.  The primary taxation distinction between construction materials and other tangible personal property is as follows:

  •  Boulder tax must be paid on all construction materials installed in the city regardless of where it is purchased.  No credit of City of Boulder tax will be given for taxes paid to other cities or states.
     
  • If (non-construction material) tangible personal property is purchased or rented outside of Boulder, credit will be given for a legally imposed city tax paid to another jurisdiction.  See also section 3-2-9 of the Code.  These purchases are no different from any other normal retail sale, so Boulder or another city tax may be charged to the purchaser by the vendor at the time of purchase.

Examples Construction Material Use Tax Paid in Error - A contractor picks up construction materials from a vendor in Denver and brings it back to Boulder for use on a permitted project.  The vendor charges Denver city tax because the contractor did not present the Boulder permit showing tax was prepaid.  No credit can be given for the Denver tax paid, so Boulder tax is still owed on purchase price of the materials.

The same contractor picks up a stove and microwave in Denver and is charged Denver city tax.  Since these are not construction materials, and a legally charged tax was imposed, no Boulder tax is due.  If the stove and microwave were delivered to the Boulder job site and no city tax was charged by the vendor, the contractor would be required to remit Boulder use tax on the cost of the appliances.

Permit Application: When the responsible person (contractor or homeowner) is calculating the project valuation for permit purposes, items that are not construction materials do not have to be included.  However, because all tangible personal property is subject to Boulder’s sales/use tax, if the vendor does not charge Boulder tax at the time of purchase, these purchases must be added to the cost of all materials when completing the project reconciliation.  In order to avoid a potential tax liability at the end of the project, the contractor or homeowner can elect to prepay additional use tax when purchasing the permit without having to increase the valuation and permit fees.

Prior to beginning construction work in Boulder, the contractor must apply for a building permit.  When taxes are prepaid in accordance with subsection 4-20-4(d) of the Code, the permit will allow the contractor to purchase construction materials from vendors in other municipalities free of the other municipalities' sales tax.

Note: It is critically important that the Boulder permit placard and receipt showing the pre-payment of Boulder city and county taxes be distributed to the contractor’s employees and subcontractors so they can present it to construction material suppliers in order to avoid paying city taxes twice.

The following chart explains the application of city tax to construction materials versus all other tangible personal property (TPP):

Description of Purchase

Application of City Tax When Tax is Prepaid on a Boulder Permit

Construction materials purchased inside or outside the City of Boulder

  • Boulder tax must be paid.  To avoid also paying another city's tax when purchasing construction materials, the permit placard and receipt showing prepaid tax must be presented to all vendors.
  • Purchaser should contact vendor for refund of other city's taxes if charged in error.
  • If vendor collected and reported Boulder tax, credit is allowed.

Non-construction material TPP purchased in Boulder

 
  • Boulder tax should be charged by the vendor and remitted to the city.
  • Permit cannot be used to purchase this property city tax-free because purchase is for non-construction materials.  Therefore, permit placard does not apply.

Non-construction material TPP purchased and picked up in another city

  • The vendor will likely charge tax for the city where they are located.  Boulder gives credit for this legally imposed tax.
  • Permit cannot be used to purchase this property city tax-free because purchase is for non-construction materials.  Therefore, permit placard does not apply.

Non-construction material TPP purchased from any vendor that delivers to Boulder job site

 
  • Vendor must have a Boulder sales tax license in order to charge and collect Boulder tax.
  • If Boulder tax is properly charged, credit is allowed.
  • If another city tax is charged and the vendor is not licensed with Boulder, it is not a legally imposed tax and credit is not allowed.  Purchaser should contact vendor for refund of the taxes charged in error.
  • If no tax is charged on delivered materials, the cost of these purchases must be included in the final cost or contract price.  Refer to reconciliation instructions on the Construction Use Tax Web page here.

 

 If a vendor is located in the state of Colorado, the vendor shall charge State sales tax and any applicable RTD, Cultural District, Football Stadium and County sales tax.  This is also true of other municipalities' building permits when presented to Boulder vendors; the Boulder vendor shall not charge Boulder sales tax, but will charge State, RTD, Cultural and Football Districts and County tax, unless the contractor also has an exemption certificate from the State of Colorado.

Contractor Labor: Contractor labor is exempt from sales/use tax if it is separately stated and the contractor is not a vendor, manufacturer, or retailer.  When a contractor is also a vendor, manufacturer or retailer the following applies:

  • A vendor or retailer that also acts in the capacity of a contractor must report and pay use tax on materials taken from its own inventory that are used for a construction project.  The amount of the tax is based on the retail market price of these materials, less any mark-up.
  • A contractor that is also the manufacturer of the materials or other items of tangible personal property that are to be incorporated into a structure must base the tax on the retail value of the item that would ordinarily be derived from the retail sale of the items manufactured by the contractor.  This measure of value does not apply to a manufacturer that has not, within the year prior to the use of the items in question, sold a similar manufactured item at retail. The measure of value in this situation would be the cost of materials used.

When working on projects outside the purview of a permit, the construction company is not considered a contractor.  Refer to Non-Permitted Projects  below.

Construction Project Reconciliation

Construction permits issued on or after July 1, 2010 with a final project cost or billed contract price that was $20,000 or higher are subject to the reconciliation provisions of subsection 3-2-18(b) of the Code.  The Frequently Asked Questions (FAQ’s) located on the Construction Use Tax Web page provide important information about the reconciliation process.  Please go here to access the Web page.

UPDATE - For Construction Permits issued on or after January 1, 2021, the new filing threshold is now $75,000 or higher. Permits issued before this date are still subject to the $20,000 filing threshold. 

Non-Permitted Projects

Construction projects that do not require a City of Boulder permit fall under one of two categories: 1) time and material jobs or 2) lump sum jobs.  When a project does not require a permit and construction use tax is not prepaid on a permit, sales or use tax must be reported and paid by the construction company at the time the project is completed or at the time the customer is billed as follows:

Time and Materials Jobs: Construction companies, landscapers and any other companies that invoice separately for labor and materials must obtain a sales and use tax business license and charge sales tax on the retail price of all materials.  Contractors performing such work are referred to as “retailer-contractors” and are retail merchants of building supplies and materials.  “Retailer-contractors” must break out materials and labor on their invoices and charge retail sales tax on the materials.  Materials purchased by “retailer-contractors” should be purchased tax free (at wholesale) because they are being purchased for resale. The sales tax collected from the customer is reported and paid to the City of Boulder on a monthly or quarterly sales/use tax return.  Repair and installation labor charges are not subject to tax if separately stated on the invoice.  If repair and installation labor are not separately stated from materials on the invoice, the entire charge is subject to tax.  Refer also to TR36: Repair Work.

Lump Sum Jobs: Construction companies that bid, perform and invoice lump sum contract work on real property are the consumers of the materials used to complete the work.  In this respect, they are treated like contractors working on permitted jobs.  However, because no use tax is prepaid on a permit, such companies are responsible for paying use tax directly to the City of Boulder or paying sales tax to the vendor at the point of purchase on all materials, supplies, tangible property rentals and taxable services used to complete the project.  These companies must obtain a sales and use tax business license from the City of Boulder and report use tax as they perform work in the City of Boulder.  Use tax is due on materials and supplies whenever another legally imposed tax rate equal to or greater than the total Boulder combined tax rate has not been paid to the vendor.  Refer to section 3-2-9 of the Code.

Construction companies that perform work without a written contract but choose to bill the job on a lump sum basis are representing themselves as contractors, so are responsible for paying the use tax on materials and supplies.  If the construction company pays city sales tax at point of purchase and can prove their materials costs are passed along to the customer at exact cost, with no markup, no additional city tax is owed.  Otherwise, lump sum construction jobs are treated as retail sales and the construction company must collect and report sales tax as described under “Time and Materials Jobs” above.  Construction companies engaged in business in the City of Boulder in the capacity of a seller or user of tangible property and taxable services must obtain a sales and use tax business license, and report and pay Boulder city tax through monthly or quarterly sales/use tax returns as noted in subsections 3-2-2(a) and 3-2-11(a) of the Code.

For any construction work that does not require a permit, if sales tax is not collected or paid, or use tax not properly reported by the construction company doing the work, use tax must be paid by the customer on the price of all taxable materials and taxable services purchased.

Example: Lump Sum Job (use taxable) :   A construction company bids to repair drywall, add texture, and paint all rooms of a Boulder hotel.  In addition, they will repair or replace broken or worn tile as needed.  This work does not require a permit.  The Boulder hotel enters into a written fixed price contract with the construction company to complete the work for $25,000.  As no permit exists, there is no permit placard to indicate prepayment of construction use tax.  The construction company is responsible for the taxes on all materials used, so must report use tax directly to the city through tax returns on the cost of all materials and supplies where city tax was not charged by the vendor at point of purchase regardless of the city where the purchase took place.  Because this is non-permitted work, if the construction company is not licensed and fails to report tax on the materials, the hotel may be held responsible for tax on the materials.

 

Completed Units of Tangible Personal Property

Certain items when installed outside the scope of a permit are considered completed unit retail sales.  These items include but are not limited to: appliances, automated building control systems, carpeting & pad, custom cabinetry, removable countertops, fencing under 3 feet, removable fixtures, furniture, garage doors and openers, hot tubs, internal signage, trees, shrubs, sod and other landscape materials, storm doors and windows, window coverings, patio covers, and prefabricated (above ground) swimming pools.  Tax must be charged on the retail price of these units.  If not collected by the seller, the purchaser must remit use tax on the purchase price.


Example: Lump Sum Job (completed unit retail sale) :  A construction company bids to install two replacement windows and new countertops at a Boulder residence and then enters into a written fixed price contract with the homeowner to complete the work for $8,000.  Because the windows and countertops are completed units, the construction company must treat the sale as a retail sale by separating the price of the units sold from the installation labor.  Sales tax must be charged on the price of the units and reported on the construction company’s Boulder tax return.
 


Construction Work for Governments and Other Tax-Exempt Institutions, Including City of Boulder Contract Projects

Contractors are the users and consumers of construction materials and taxable services when doing construction in the city.  Contractors working on buildings and any other structures owned by governments or other tax-exempt entities in the city may not be required to pull a city permit, but are required to pay use tax on such construction materials and taxable services.  Before a contractor initiates a construction project for a tax-exempt entity for which a permit is not required, the contractor must complete the “Prepaid Tax Estimate for Contractors Working on Construction Projects Not Requiring a City Permit,” and prepay city use tax on either fifty percent (50 percent) or thirty percent (30 percent) of the contract price , depending on the type of construction (refer to chart below).  This prepayment form is available under the Construction Use Tax Reconciliation menu on the right side of the Web page here .  Within ninety days of completion of the project, the contractor is required to file a reconciliation in accordance with subsection 3-2-18(b) of the Code.

Construction use tax for City of Boulder construction projects are paid as follows: Any project for which the contract price is $20,000 or more, the contractor shall prepay city use tax based upon the following percentages:

Type of Contract

Percentage of Contract Amount to Which Use Tax is Applied

  • Building construction
  • Landscape installation
  • Playground construction/installation

50 percent

  • Construction in the city's right-of-way
  • Sewer or water line installation or rehabilitation
  • Stand alone site work

30 percent

The applicable percentage is applied to the contract price and the result is multiplied by the city’s current tax rate to determine the prepayment tax due.  At the time the contractor applies for final payment on contracts of $20,000 or more, it must submit to the city’s Sales and Use Tax Division, Boulder Reconciliation Form 15, insert link which is attached to the general conditions of the city's standard public work's construction contract.  The Division will determine the total amount paid by the city for the work under the contract and compute the total use tax due based on the above percentages.

UPDATE - For Construction Permits issued on or after January 1, 2021, the new filing threshold is now $75,000 or higher. Permits issued before this date are still subject to the $20,000 filing threshold. 

Contractors have the option to use either the actual method or the short (48 percent/52 percent) method to complete the reconciliation.  After the total tax payment is received by the city's Sales and Use Tax Division, it will approve Form 15.  After paying all use tax due, the contractor may request an audit by the city.  Depending upon the determination of the city's tax auditor, the contractor will either be refunded use tax or be required to pay the city additional use tax owed.

 

Construction Equipment

Equipment Rentals: Construction equipment and any other equipment that is rented by a contractor or homeowner for use on a Boulder construction project is subject to sales/use tax.  Charges for the use of any equipment in Boulder, whether on an hourly, daily or other periodic rate are considered rental of equipment and are subject to sales/use tax.  If charges for the operator of the equipment are not separately stated from the rental of the equipment, the total charge is subject to sales/use tax.  If the equipment is picked up in another city and that city’s sales tax is charged by the company renting out the equipment, credit is given for that tax.  If the rental equipment is delivered to the Boulder job site, the rental company must be licensed to charge Boulder tax.  If Boulder sales tax is not properly charged, use tax must be paid by the contractor or homeowner renting the equipment.  The cost of these rentals must be included in the actual total cost of taxable purchases if the actual method is selected to do the project reconciliation.


Example Equipment Rental with Operator - A contractor contracts with an equipment dealer for a backhoe with an operator for a charge of $250.00/day.  The charge for the operator is not separately stated.  Therefore, the entire charge for the contract is subject to sales/use tax.  If the operator labor charges were separately stated on the invoice, they would not be taxable.
 

Construction Equipment Used by its Owner: "Construction equipment means equipment with a purchase price of $2,500 or more used in the erection, installation, demolition, alteration, repair, remodeling or landscaping of a building or structure upon real estate" (section 3-1-1, BRC, 1981).  Construction equipment does not include “automotive vehicles” as defined in section 3-1-1 of the Code.  Construction equipment is not pre-owned property that is considered to be permanently transferred into the city as described in TR44 Use Tax – Pre-Owned Property Transferred into the City.

Owners of construction equipment are responsible for filing equipment declarations and paying any tax that may be due when using the equipment in Boulder (subsection 3-2-2(a) of the Code).  The use of construction equipment in Boulder with a purchase price $2,500 or more is subject to use tax based on the length of time it is located within the city and the age of the equipment on the day it is brought into the city as follows:  If located within the city for more than thirty (30) consecutive calendar days, use tax is due based on the full “Value of the Equipment.”  If located within the city for less than thirty-one (31) consecutive calendar days, one-twelfth (1/12 or 8.33 percent) of the “Value of the Equipment.”

The "Value of the Equipment" is determined by the age of the equipment on the first day that it is located in the city for each and every different construction project as shown in the chart below:

Age of Equipment on 1 st Day Located in City for Each Different Project (based on last purchase)

Taxable Value of the Equipment

Between 1 day and 5 years (1825 days)

Purchase Price

From 5 years (1825 days) through 10 years (3650 days)

Greater of book value or fair market value (FMV) on first day located in the city

Greater than 10 years (3650 days)

This equipment is not subject to Boulder’s use tax

The equipment cannot be moved in and out of the city during a single project to avoid having it located in the city for more than 30 consecutive days with the intent of avoiding paying tax on the full value of the equipment.

A credit will be granted against the city's use tax due equal to the tax paid as required by law to another municipality or state (subsection 3-2-9(b) of the Code).

When another city sales/use tax equal to or greater than Boulder’s (city only) tax rate or a total tax greater than or equal to Boulder’s total (city and state collected) rate has been paid on the purchase price of construction equipment, the tax obligation on that purchase has been satisfied.  Examples of satisfying the tax obligation may include construction equipment taxed by the city where the construction equipment is stored at the time of purchase, or through an equipment declaration or audit of another city.  Each time the equipment is sold it is subject to the sales or use tax.

Reporting: Equipment construction use tax is reported on a Construction Equipment Declaration Use Tax Return.  The declaration form and instructions are available under the “Equipment Declarations” menu on the right side of the construction use tax web page here .  The filing requirements (see chart below) are detailed in the Code in subsection 3-2-2(a)(12).

Filing requirements are based on the length of time the equipment is located in the city as follows:

Amount of Time Equipment is Located in City

Filing Requirement

Less than 31 consecutive days

Equipment declaration must be filed within 20 days of removal of the equipment from the city

More than 30 consecutive days

Initial equipment declaration must be filed within 90 days of first day each piece of equipment is brought into the city, and every 90 days thereafter until all equipment has been moved out of the city.

Combination of equipment located in city less than 31 consecutive days and more than 30 consecutive days

An equipment declaration and any tax owed must be filed within 20 days of removing any equipment from the city.  For the equipment that remains in the city for more than 30 consecutive days the declaration is required as specified above.  Once equipment has been located in the city for more than 30 consecutive days, an amended declaration and any tax owed is due the earlier of 90 days from the date it was moved into the city or 20 days after the equipment was moved out of the city.

If the required equipment declarations are not filed on time, as provided in the Code in subsections 3-2-2(a)(10) and (12) , the equipment is treated as though it was located in the city for more than thirty (30) consecutive days and the full value of the equipment is subject to tax.  The one-twelfth pro-ration provided in the Code in subsection 3-2-2(a)(10) cannot be used.

Examples: Construction Equipment Declaration - On Nov. 5, 2010
ABC Company (equipment owner) brings their crawler loader to a Boulder job site and uses it for 25 consecutive days before moving it back to its storage site in unincorporated Jefferson County on Nov. 30 th .  Because it is stored at an unincorporated address, no city tax was paid at the time it was purchased.  ABC Company paid $50,000 for the loader in June, 2006 and has previously paid Denver tax of $291.67 on 2/12ths of the cost because it was used on two separate projects in Denver for periods of 30 days or less.  If ABC Company files the equipment declaration on time (by Dec. 20, 2010), ABC Company is required to pay tax on one-twelfth of the purchase price as follows:  ($50,000 x 3.41 percent = $1,705/12 = $142.08 Boulder tax due.)  The fact that tax was previously paid to Denver on 2/12ths does not impact this calculation.

If the declaration was not timely filed and paid, tax would be due on the entire $50,000 purchase price, less the Denver tax that was previously imposed as follows:  ($50,000 x 3.41 percent = $1,705 - $291.67 Denver tax = $1,413.33 Boulder tax due.)