Free guide for contractors
Do contractors charge sales tax in Colorado?
General information, not tax advice. Tax rules change and depend on the details of each job. Confirm how they apply to your business with your accountant or the state's revenue department before relying on them.
CO Colorado
Depends on the jobIt depends on how the contract is priced. Lump-sum jobs carry no sales tax; time-and-materials jobs carry tax on materials.
On a lump-sum contract, Colorado treats the contractor as the consumer of the building materials. The contractor pays tax when buying them and collects no sales tax from the customer.
On a time-and-materials contract, the contractor collects sales tax from the customer on the marked-up price of the materials. Labor listed separately is not taxed. A contractor using time-and-materials contracts must have a sales tax license.
The Department's guidance defines a time-and-materials contract as one that states the price of building materials separately from the price of labor.
Home-rule cities run their own sales and use taxes, and the Department's guidance sends questions about them to the city.
It turns on: how the contract is priced (lump sum or time and materials); whether materials are priced separately from labor; whether the item is a building material or a non-building item; whether the job is in a home-rule city.
Watch out for
- Non-building items such as stoves, refrigerators, washers, dryers, furnaces, air conditioners, carpet, electrical fixtures, ready-made cabinets and garage doors are taxable sales under any contract (FYI Sales 6).
- A city building permit can cover city and county taxes on materials, but never state or special district taxes (FYI Sales 6).
- Contractors doing only lump-sum work should not obtain a sales tax license (FYI Sales 6).
“the contractor must collect sales tax from its customer on the marked up price of the materials”Colorado DOR, FYI Sales 6