Contractors

Construction Contractors

The term "construction contractor" applies to general contractors and subcontractors and includes, but is not limited to:

  • Any person engaged in the construction, reconstruction, or significant repair of any building, bridge, or structure under a contract arrangement of any physical structure that is part of real estate
  • Building contractors
  • Cabinet, casework, sheet metal, and glazing
  • Electrical, plumbing, and heating/air conditioning contractors
  • Foundation, curb, and parking lot contractors
  • Painting, stucco, brick, and other finish contractors
  • Road, grading, and excavating contractors
  • Roofing contractors

The construction contractor is deemed to be the consumer of the construction materials used in the construction project and may not avoid the payment of the sales or use tax by the use of provisions in the construction agreement.

Businesses providing "completed units" or "fixtures" 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:

  • Without substantial damage to the structure and
  • Without altering the functional use of the structure.

Completed Units include but are not limited to sales of:

  • Appliances - stoves, refrigerators, dishwashers, clothes washers, and dryers
  • Awnings and window blinds
  • Carpeting
  • Ready-made cabinets
  • Storm doors, storm windows, screens

Fixtures include but are not limited to:

  • Air conditioning and refrigeration units
  • Burglar and fire alarms systems
  • Counters, countertops, and lockers (prefabricated)
  • Elevators, hoists, and conveyors
  • Furnaces, boilers, and heating units
  • Plumbing and lighting fixtures
  • Signs
  • Telephone equipment
  • Vault doors and equipment

On such sales, the sales tax must be collected from the purchaser by the retailer. If the installation charges are separately stated on the sales invoice, these charges are not taxable. Repairs of these items are not considered repairs of real estate.

Construction Materials

Construction materials shall mean tangible personal property which, when combined with other tangible personal property, loses its identity to become an integral and inseparable part of a complete structure or project including public and private improvements. Construction materials include but are not limited to, such things as asphalt, bricks, builders' hardware, caulking material, 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, wallboard, wall coping, wallpaper, 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.

All construction materials purchased, used, or consumed inside the City of Arvada by a construction contractor are subject to City sales or use tax unless the construction materials are purchased for:

  • Time and Materials Contractor - holding a valid Colorado sales tax license or
  • A general contractor has been issued a valid Certificate of Exemption for an exempt project which is provided to the vendor by either a general or subcontractor or
  • A construction project where a valid building permit was issued indicating use tax has been paid or will be paid

Time & Material Contractors

Arvada sales taxes are not charged to contractors working under a time and material contract if a valid sales tax license is presented to the vendor. A time and material contractor is considered the retailer of items purchased and such purchased items are sales for resale.

State Exempt Projects

The State of Colorado provides an "89" exemption for construction materials used for work on property owned and used by tax-exempt organizations, and religious, charitable, and governmental entities. The general contractor must obtain the exemption by applying to the State of Colorado prior to pulling an Arvada building permit. A separate certificate is required for each contract. Subcontractors will not be issued Certificates of Exemptions. It is the responsibility of the general contractor to issue certificates to each of the subcontractors. The exemption only applies to purchasing building and construction materials for the exempt project and does not include or apply to the purchase or rental of equipment, supplies, and materials that are used or consumed by the contractor and which do not become a part of the structure, highway, road, street or public works owned and used by the exempt organization.

The City of Arvada will accept a valid "89" certificate of exemption issued by the State of Colorado.

A contractor may not avoid the payment of City sales or use tax on materials purchased by using the name of a tax-exempt entity for which work is performed. The contractor is the consumer of the materials purchased and is subject to City tax unless a valid certificate of exemption has been issued for the specific building permit.

Building Permits

The City of Arvada requires that use tax must be paid directly to the City on all construction materials used in projects requiring a City building permit. Payment of building use tax is customarily made by the general contractor and is only a "prepayment" of tax on the project. The current sales and use tax rate is 3.46%. The building uses tax estimate is computed and collected when the permit is issued and is based on the job valuation that is reflected on the building permit.

Estimated Prepayment of Building Use Tax

A use tax estimate is computed and collected when the permit is issued and is based on the total value of construction. To calculate the use tax, first, take the valuation of the project and multiply it by the appropriate construction cost percentage (listed) to determine the estimated amount of materials that will be taxed for the project. This amount should then be multiplied by the 3.46%, the Arvada use tax rate.

  • 58% estimated materials and 42% estimated labor - Effective January 1, 2018
  • 56% estimated materials and 44% estimated labor - Effective January 1, 2017
  • 50% estimated materials and 50% estimated labor - Effective prior to January 1, 2017

Actual Basis

An alternative would be to file on an actual basis by filing sales and use tax on a monthly basis. The contractor would need to have a business license and report either the sales tax collected from the customer and/or the use tax due on construction materials used on the project. At the time the permit is being issued the Business License account number should be provided in order not to pay use tax on the permit.

To avoid potential double taxation, contractors should present the permit when purchasing construction materials in order to qualify for an exemption from City sales tax. If the materials supplier is located in the state of Colorado, the supplier shall charge State sales taxes, and if applicable RTD, Cultural, and County sales taxes. The general contractor should provide copies of the building permit to sub-contractors on the project so they may purchase construction materials without paying City tax as well.

It is suggested that the general contractor reconcile the actual use tax liability with the estimated prepayment at the conclusion of the project. When reconciling the deposit, a credit will not be given to contractors for sales taxes paid to other municipalities for construction materials used on construction projects in the City. The contractor will need to obtain a refund from the municipality where the tax was paid.

Burden of Proof - Building Permit

A valid building permit relieves a vendor from the burden of proving that the sale of building materials is for construction work only if the vendor accepts the permit in good faith from a purchaser who, at the time of purchasing the building material, intends to use the materials in the project that the permit was issued for and that the building materials will become a part of the project.

For the purchase of the construction materials not to be taxable a "valid building permit' must be provided prior to the construction materials being purchased. In addition, the "job value" on the permit should exceed the total purchase price of the construction materials being purchased under the permit. If there is any doubt about the validity of the permit, sales taxes should be collected and paid at the time of purchasing the construction materials. A refund can be issued directly from the City of Arvada if a proof is provided that the materials are covered under the permits.

Lump Sum Contractors

Lump-sum contractors are the end consumers of materials used in fulfilling all construction contracts. They must pay all applicable sales and use taxes on all purchases of construction materials, building supplies, and all other tangible personal property. The only non-taxable purchases of construction materials a contractor may make are those for construction work for a project requiring a permit or a tax-exempt project for an organization - see State Exempt Projects.

Use Tax

For projects that do not require a permit:

All construction materials purchased outside of the City and brought into the City are subject to use tax with two exceptions:

  • For materials purchased outside of the City to be used in the City on which sales taxes was properly paid to another municipal. Use tax would only be due to the extent that the Arvada City tax exceeds the amount of sales tax paid to the other municipality (incremental tax difference would be due)
  • For materials intended for use outside of the City but which are brought into City for temporary storage only, no use tax would be due. "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 the City

Use tax also applies to the contractors' use of supplies such as oxygen, acetylene, tools, and parts for tools, which they use in their business.

Note: This information is a summary in layman's terms of the relevant Arvada tax law for this subject, industry, or business segment. It is not intended for legal purposes to be substituted for the full text of the Arvada tax code. However, the tax guide shall be used in conjunction with the Arvada tax code (chapter 98) in determining tax liability.