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Colorado has issued a general information letter regarding whether a plumbing contractor was liable to pay sales tax on tangible personal property purchased for lump-sum and time and materials contracts. For lump-sum contracts, the contractor must pay sales tax on the property purchased to complete the contract and cannot charge and collect sales tax from its customers. For time and materials contracts, the contractor must be registered to collect sales tax and should collect sales tax on the amount charged to customers for the materials. The materials should be purchased exempt from tax under a resale exemption.  Since the contractor didn’t have a Colorado sales tax license to collect and remit sales tax, the Department stated that the contractor must bill all its contracts on a lump-sum basis and not on a time and materials basis. If the contractor obtains a Colorado sales tax license, it can enter into time and materials contracts and charge sales tax accordingly. If the contractor did not mark up the price of the materials purchased, the contractor is not permitted to pay sales tax on the materials if customers are billed on a time and materials basis. The Department stated that the purpose of the rule is to deal with situations where there is a mark-up of the materials and that the rule does not make a distinction between contractors that mark up and those that do not. As a result, all contractors are required to follow the rule. The contractor regulation is under review by the Department and they may consider whether to accommodate this situation by regulation. (GIL 15-015, Colorado Department of Revenue, June 8, 2015, released August 2015)

(08/24/2015)

Colorado has issued a general information letter discussing whether audio-visual equipment was classified as construction building materials for sales and use tax and contractor exemption purposes. The equipment provided by the audio-visual systems retailer included video monitors, speakers, amplifiers, wireless microphone systems, video cameras, projectors, racking hardware, antennas, conductors, and cabling. Building materials are generally materials that are incorporated into the structure to such an extent that they cannot be removed without substantial damage to the structure. The Department stated that the VDA and HDMI input plates appeared to be the only material that can be treated as building materials if they are permanently attached to the structure. The retailer did not perform the traditional work of an electrician. The Department was reluctant to classify installers of audio-visual equipment, entertainment systems, burglar alarms and similar equipment as construction contractors because the equipment was not considered building materials and was generally not fixtures of real property. As a result, the Department treats the company as a retailer and not a contractor. As a result, the materials are not eligible for the contractor sales and use tax exemption. The audio visual company is deemed a retailer and should charge sales tax on the selling price of the equipment.  If the sale is made to a contractor, since the equipment is not classified as building material, the contractor is deemed a retailer when selling it to its customer.  It will be required to be registered to collect sales tax and should issue a resale certificate to the audio visual company on its purchases. (GIL 15-011, Colorado Department of Revenue, July 22, 2015)

(08/21/2015)

Colorado has enacted a sales and use tax refund for tangible personal property used for research and development by a qualified medical technology or clean technology taxpayer. From January 1, 2015 through December 31, 2017, a qualified medical technology or clean technology taxpayer can claim a refund up to $50,000 per calendar year for state sales and use tax paid by qualified taxpayers for tangible personal property used in Colorado directly and predominately in research and development of medical technology or clean technology. To claim the refund, the taxpayer must submit a refund application to the DOR no earlier than January 1 and no later than April 1 of the calendar year following the year in which the tax was paid. The taxpayer must provide proof of the taxes paid and any other additional information required by the DOR.(H.B. 1180, Laws 2015, effective 91 days after final adjournment of the General Assembly)

(06/23/2015)

The Colorado Supreme Court has ruled that electricity is treated as a service rather than tangible personal property under the state’s sales and use tax law. An electricity producer argued that electricity is tangible personal property, and that its production constitutes manufacturing, thereby entitling it to the manufacturing machinery exemption for machinery used in production. The taxpayer claimed that it was entitled to a refund for sales and use taxes paid on machinery purchased for the generation of electricity. The state’s manufacturing exemption applies to machinery used for the production of tangible personal property. Colorado does impose its sales and use tax on electricity – however, not as the sale of tangible personal property.  Tax is imposed on “electric service, whether furnished by municipal, public or private corporations or enterprises, for gas and electricity furnished and sold for commercial consumption and not for resale.” The court found that the Colorado General Assembly treated electricity as a service rather than as tangible personal property. As a result, the taxpayer was not eligible for the exemption for machinery used in the production of electricityas it was not tangible personal property.(Department of Revenue v. Public Service Co., Colorado Supreme Court, No. 11SC759, June 30, 2014)

(05/14/2015)

Colorado has issued guidance on whether certain lease payments for vehicles used in interstate commerce are subject to sales or use tax and has clarified the procedure to document the exemption. Generally, a new or used trailer, semitrailer, truck, truck tractor, or truck body purchased for use exclusively outside Colorado or in interstate commerce and delivered by a Colorado manufacturer or dealer within Colorado that is subsequently driven or moved by the buyer outside the state within 30 days after the delivery date is not subject to sales tax at the time of purchase. The exemption applies only to purchases of vehicles used in interstate commerce.  Long Term Leases which are leases greater than 3 years are considered purchases and therefore this exemption will apply.  For leases less than 3 years, the lessor is generally considered the user and is liable for payment of use tax on the purchase of the vehicles unless the lessor has been granted permission to treat the leases as sales.  If this has been granted then the leases will qualify for the interstate commerce exemption.  For sales or tax exempt motor vehicle purchases, the Colorado Department of Revenue recommends that purchasers use DR 0780. (GIL 14-021, Colorado Department of Revenue, October 9, 2014, released December 2014)

(05/14/2015)

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