City and County of Denver, Colorado
Topic No. 15
The term "construction contractor" applies to general contractors and subcontractors and includes all building constructors, highway and road constructors, electrical, plumbing, and heating constructors, excavators, and others engaged in the construction, reconstruction, repair, or wrecking of any physical structure that is part of real estate.
Business enterprises providing completed units of personal property to be affixed to, installed in or used in conjunction with a structure will not be regarded as performing work by a contractor if the personal property can be removed:
A. Without substantial damage to the structure, and
B. Without altering the functional use of the structure.
Business enterprises, as described above, are considered vendors who make retail sales.
The Colorado Statutes provide an exemption for purchases by contractors of construction and building materials that become permanently affixed to the real property when the owner of the real property is a non-profit school or a governmental, charitable, or religious entity. Denver has no such exemption.
The contractor may not avoid the payment of the Denver sales or use tax by use of provisions in the construction agreement or by use of the name of a tax exempt entity on an invoice or purchase order as the purchaser because the contractor is deemed to be the consumer of the materials used in construction. No exemption certificate issued by the Colorado Department of Revenue, nor any other taxing authority, will be recognized as a basis for exemption from the sales or use tax levied by the City and County of Denver on construction materials.
Building materials purchased, used, or consumed in the City and County of Denver are subject to sales or use tax if not purchased for resale or by an organization that has a letter of exemption from the City and County of Denver.
A. For materials delivered by a Denver vendor to a construction contractor at a job site in Denver, the sale is subject to sales tax. For materials delivered to a storage facility in Denver, the sale is subject to sales tax unless a use tax has been or will be paid to another municipality. (See C below.)
B. For materials picked up in Denver to be used in Denver, the sale is subject to sales tax. This is true regardless of where the purchaser's business is located.
C. For materials picked up in Denver to be used outside Denver, the sale is subject to sales tax unless a use tax has been or will be paid to another municipality. If the purchaser presents to the retailer a building permit showing that a use tax has been or will be paid to another municipality on the building materials to be used in that municipality, then the sale is exempt from Denver taxation. Denver does not collect sales tax to compensate for the differential in tax rates when another municipality has been paid estimated use tax included in the charges associated with acquiring a building permit.
D. For materials delivered by a Denver vendor to a location outside of Denver for use outside of Denver, the sale is exempt from sales tax.
E. There is no exemption in the sales tax ordinance for the temporary storage of construction materials in Denver. (See, however, B below under Use Tax.)
Materials purchased outside of Denver and brought into Denver are subject to use tax with two exceptions:
A. For materials purchased outside of Denver to be used in Denver on which sales tax was properly paid to another municipal corporation, use tax would be due only to the extent that the Denver tax exceeds the amount of sales tax paid to the other municipality.
B. For materials intended for use outside of Denver but which are brought into Denver for temporary storage, no use tax would be due. However, any use, consumption or distribution beyond the meaning of "storage" would be taxable. For purposes of administering this section, "use" or "consumption" will not include shop tasks performed on the materials such as assembly of parts or bending of sheet metal prior to the materials being installed out of Denver.
Equipment purchases from Denver licensed vendors in which the delivery takes place in Denver are subject to sales tax.
Denver imposes use tax on tools and equipment used on a Denver job, unless sales tax was paid to another municipal corporation at the time of purchase. If the tax paid was less than the tax imposed by Denver, the difference will be paid to Denver.
Tools and equipment which have been used prior to being brought into Denver are subject to use tax on the fair market value at the occasion only of their first use in Denver.
The DRMC provides for a proportional use tax on construction equipment located within Denver for a period of thirty (30) consecutive days or less, providing the taxpayer has complied with the equipment declaration procedures provided for in Section 53-106.2.
Automotive vehicles (vehicles whose primary purpose is transportation upon public streets) registered and required by law to be registered outside of Denver are exempt. Specifically, construction contractors' pickup trucks and over-the-highway dump trucks which are based and maintained at a location outside of Denver would not be subject to Denver's sales or use tax.
The DRMC defines manufacturing as "the performance as a business of an integrated series of operations which places personal property in a form, composition, or character different from that in which it was acquired whether for sale or use by the manufacturer. The change in form, composition or character must result in a different product having a distinctive name, character and use."
Organizations engaged in the manufacturing of tangible personal property who also perform construction contracts (i.e., permanently affix personal property to real property) where a retail market for the manufactured product also exists, are subject to Denver tax on the gross value of all the materials, labor and services used and employed in the manufacture of the product.
Where a retail market does not exist for the manufactured product, tax is to be paid only on the actual cost of materials used in the product.
Shop tasks performed on construction materials, such as cutting, welding, drilling, and painting structural steel or cutting, bending, and attaching sheet metal pieces into "duct work," are not regarded as "manufacturing" as defined in the DRMC. Thus, in such cases, fabrication labor is not part of the tax base for a contractor/fabricator.
Fabrication labor is part of the tax base when transfer of title to the fabricated item takes place after performance of the fabrication by the retailer/fabricator.
Completed units of "ornamental iron" (such as metal handrails, platforms, staircases and door and window coverings) are generally considered a manufactured product and subject to tax as explained above for manufacturer/contractors.
RELATED TAX GUIDE TOPICS
Liens on Real Property
Special Mobile Machinery and Equipment
Reduction Allowed for Previously Paid Sales or Use Taxes
* DRMC Section 53-24(5) Definitions – Construction and Building Materials – Sales.
* DRMC Section 53-24(10) Definitions – Manufacturing – Sales.
* DRMC Section 53-24(17) Definitions – Retail Sale – Sales.
* DRMC Section 53-25 Imposition of tax – Sales.
* DRMC Section 53-26(13) Exemptions – Construction and Building Materials – Sales.
* DRMC Section 53-37 Application to manufacturers of tangible personal property – Sales.
* DRMC Section 53-92(c) Legislative intent – Use.
* DRMC Section 53-95(5) Definitions – Construction and Building Materials – Use.
* DRMC Section 53-95(11) Definitions – Manufacturing – Use.
* DRMC Section 53-95(19) Definitions – Retail Sale – Use.
* DRMC Section 53-96 Imposition of tax – Use.
* DRMC Section 53-97(15) Exemptions - – Construction and Building Materials – Use.
* DRMC Section 53-98(e) Retailers to collect tax – Use.
* DRMC Section 53-106 Application to manufacturers of tangible personal property – Use.
* DRMC Section 53-106.2 Application to certain construction equipment – Use.
* Rules Regarding The Assessment And Collection Of Sales And Use Tax On Sales And Use Of Tangible Personal Property Acquired By Construction Companies.
* Rules Regarding Previously Paid Sales or Use Taxes.
THE ABOVE INFORMATION IS A SUMMARY IN LAYMAN'S TERMS OF THE RELEVANT DENVER TAX LAW FOR THIS INDUSTRY OR BUSINESS SEGMENT. IT IS NOT INTENDED FOR LEGAL PURPOSES TO BE SUBSTITUTED FOR THE FULL TEXT OF THE DRMC AND APPLICABLE RULES AND REGULATIONS.