General Use Tax FAQs
Construction Use Tax & Permits
Taxes Paid to Vendors
Responsibility for Paying Taxes and Filing Reconciliation Return
Projects Done for Tax-Exempt Customers
Construction Use Tax & Permits
Construction Use Tax is the sales/use tax paid by contractors or homeowners for construction materials used when erecting, building, remodeling or repairing real property. The payment of construction use tax is a requirement of obtaining a city permit.
What is the Construction Use Tax rate that is prepaid with the permit fees?
Both Boulder city and county use taxes are prepaid on the permit. The current tax rate for the city is 3.41 percent and the county rate is 0.80 percent. Construction Use Tax must be paid to the City of Boulder on all construction materials installed in the city.
Why does the city "estimate" the tax at the start of the process rather than providing applicants with a firm tax obligation of the amount owed?
The estimated tax is based on the proposed contractor determined cost or average estimated cost (valuation using ICC tables) of a construction project at the time the permit is issued. The focus when calculating building valuation is the scope of the project in order to determine fees that cover the city's cost of plan review, permit issuance, and building inspection services.
The use tax prepaid at the beginning of a project is an estimate based on the construction cost valuation because the actual final project cost is unknown. Many projects have change orders that affect the final project cost, so reconciliation is necessary to report taxes on the additional purchases related to these changes.
How does the city estimate the construction use tax that is charged on the permit?
The city uses project cost valuation to estimate the Construction Use Tax deposit that is prepaid at the time a building permit is issued. Project valuation is determined by comparing the contractor stated cost value and the city calculated cost value and selecting the higher of the two.
The city uses ICC building data to calculate project valuation for most building construction.The city's code provides that contractors pay Construction Use Tax on the materials portion of a project; 50 percent of the project valuation is considered taxable construction materials and 50 percent is non-taxable labor, overhead, services and other similar costs.
What is the purpose of showing the building permit placard to vendors when purchasing construction materials?
Because the estimated Construction Use Taxes on the construction materials are prepaid on the permit, a copy of the building permit placard must be provided to all vendors when purchasing construction materials in order to avoid paying these taxes twice. Colorado Revised Statute (C.R.S.) 29-2-105(2) provides:
"No sales tax of any statutory or home rule city, town, city and county, or county shall apply to the sale of construction and building materials, as the term is used in section 29-2-109, if such materials are picked up by the purchaser and if the purchaser of such materials presents to the retailer a building permit or other documentation acceptable to such local government evidencing that a local use tax has been paid or is required to be paid."
Because a prepayment estimate was made at the time the permit was issued, construction materials may be purchased exempt from city tax only for the project to which the permit applies. State and other non-municipal taxes, such as RTD, still apply. The exemption from sales tax applies only to construction materials (tangible personal property that becomes an integral and inseparable part of real property). General contractors should provide a copy of their permit (showing tax prepayment) to all subcontractors that purchase construction materials so they too can purchase materials without paying the city and county tax.
Can I make additional use tax payments between the prepayment estimate and the time of reconciling the final project cost?
Yes. In some situations, a homeowner or contractor may prefer to make a deposit larger than the Construction Use Tax estimate. The Planning & Development Services Center will accept additional prepayment deposits of use taxes at any time prior to the completion of the project. These Construction Use Tax payments do not affect the permit fee calculations.
Taxes Paid to Vendors
What if the GC or subcontractors paid city sales taxes when they picked up materials in another city? Are credits allowed for these taxes?
The important distinction is if the items are construction materials or non-construction materials.
Boulder tax must be paid on all construction materials used for projects within the city, so no credit is allowed for other city taxes paid. It is important to present the permit placard when purchasing construction materials. The City of Boulder will not credit these purchases, as the placard should have been presented, which would have resulted in no taxes being charged on construction materials. The purchaser may contact the vendor or city where the tax was paid to determine if the vendor or city would process a refund.
The City of Boulder does give credit for another city's tax imposed on non-construction materials such as tools, general supplies and appliances if they are picked up in another city because presenting the permit placard to a vendor indicates prepayment of taxes only on construction materials. However, if non-construction materials are delivered to the job site or picked up in an unincorporated area and no city tax was charged, Boulder city tax must be paid by reflecting these items in the final contract price or total project cost when completing the reconciliation.
What happens if I present the permit to a construction materials supplier in another city but the supplier refuses to remove the city tax from the sale?
Explain that Colorado state law provides that they cannot charge the city tax again when it has already been paid on a permit. If necessary, give the supplier a copy of C.R.S. 29-2-105(2). If they still are unwilling to remove the city tax from the sale, they are in violation of state statutes, so they should be reported to the Colorado Department of Revenue (303-238-7378). Another option would be to have the materials delivered to the Boulder job site, in which case the vendor would not be legally responsible for charging tax for the city in which the vendor is located. If the vendor simply needs to verify the application of the law, you can have them call the City of Boulder Tax Division at 303-441-3288.
Responsibility for Paying Taxes and Filing Reconiliation Return
Sometimes the person picking up the permit is the responsible person. However, the act of picking up the permit does not determine the responsible person.
The definition that determines the responsible person is located in section 3-1-1, B.R.C. It states: "Responsible person" means
Applying this code provision:
Permits will not be released from the city service center to anyone other than the homeowner without the name of the licensed general contractor (GC).
If the Contractor did not apply for and pick up the permit, is s/he still responsible for filing the reconciliation return?
It is not the person who picks up the permit that determines who is the responsible person. The contractor responsible for the construction project is ultimately responsible for the use tax under city code.
Because the city regulates licensing of GCs and designates the GC as the responsible person for the construction, it would be prudent for contractors to place standard language within their contract documents specifying the party that is responsible for paying all construction use taxes, particularly if the GC wants the contract to specify that another person is responsible for paying the taxes. While such a contract does not change the designation of the responsible party by the city, the GC could enforce the contract to recover any taxes the GC had to pay the city from the person(s) the contract says was responsible to pay the taxes.
Who is the responsible person when a homeowner does work on their own residence and does not hire a contractor?
In these situations, per the city code, the homeowner is acting as the GC and is therefore the responsible person. Note: The filing requirement threshold of $20,000 means many of these homeowners acting as their own GC do not need to reconcile.
This can happen in the construction of residences. A homeowner can pull the permit when they are working on their own personal residence. The homeowner will be listed as the GC. If the homeowner pulls the permit and subsequently hires a licensed GC to do the construction, the licensed GC becomes the responsible person. The homeowner or hired licensed GC should update the city with the name and license number of the GC that will be doing the construction work.
Projects Done for Tax-Exempt Customers
Is a general contractor responsible for paying construction use tax on a project done for a tax-exempt entity that is not subject to use tax?
Yes, as defined by the city code, the "Responsible Person" is the contractor. Tax Regulation 13 specifies that "contractors are the users and consumers of construction materials and taxable services when doing construction in the city." The tax exempt status of a customer does not pass through to contractors. Regardless, if a tax-exempt entity pays the permit fees and taxes at the time the permit is pulled, the contractor responsible for the construction project is still ultimately responsible for the use tax. The city will accept payment of use tax from either entity; however the licensed contractor designated on the permit is responsible for filing the reconciliation return and paying any additional taxes owed.
If a tax-exempt entity purchases construction materials and hires a licensed contractor to install the materials on a construction project, are any taxes owed?
Yes. Tax must still be paid on the construction materials. A tax-exempt entity that is not a licensed contactor cannot use construction materials for the purpose they were intended, so use tax on materials cannot be avoided by having a tax-exempt entity purchase the materials. Regardless that a tax-exempt entity purchased the materials, the contractor is the user and consumer of the materials needed to complete the construction project. The tax-exempt status of a customer that hires an independent contractor cannot be assumed by the contractor. Refer to B.R.C. 3-2-7(b)(4).
Last Updated on Thursday, 31 January 2013 09:14