Does Colorado sales tax apply to a company that only provides labor—merchandising, hanging signage, and assembling fixtures—for retail-store customers who own all the goods?

Plain-English summary

A company planned to offer three labor-only services to large retail stores in Colorado and asked whether sales tax applies:

• Merchandising — stocking and arranging the store's merchandise on its shelves and display fixtures for the most efficient, attractive placement.
• Signage — hanging the store's large signs/displays (often on aircraft cables over rafters, secured with zip ties), meant to stay up five to six years.
• Fixtures — assembling the store's own gondolas/shelves (provided disassembled, new or used) before stocking them; occasionally anchoring a unit to the floor for seismic requirements.

The company owns none of the tangible personal property — the customers own the merchandise, signage, and fixtures. The Department concluded that all three activities are services, and Colorado generally doesn't tax services, so under these facts the company incurs no sales or use tax liability.

Two things the Department flagged: (1) the conclusion assumes the company is not an affiliate, subsidiary, or otherwise related to its customers (just a contractor for services) — if that's wrong, the answer might differ; and (2) the customers themselves "clearly" have sales/use tax obligations on the merchandise, signage, and fixtures, but those are not the company's obligation and weren't addressed here.

What this means for you

Labor-only service providers

If you sell pure labor and never own or transfer the goods, Colorado's services-aren't-taxed rule generally means you owe no sales/use tax on the work. Keep the line clean: the customer buys and owns the materials; you bill only for labor. Don't fold the purchase of taxable goods into your service deal.

The affiliate caveat

This result depends on you being an arm's-length contractor, not a related entity to the customer. If you and the customer are affiliated, the Department reserved the right to reach a different result — worth a private letter ruling if your structure is intercompany.

Don't forget the customer's side and home-rule

The store still has its own sales/use tax obligations on the merchandise, signage, and fixtures (and business personal property tax, which the Department doesn't administer). And Colorado's self-collected home-rule cities/counties set their own rules — see DRP 1002.

Common questions

Q: Is merchandising/stocking labor taxable in Colorado?
A: No. It's a service, and Colorado generally doesn't tax services. A labor-only provider that owns none of the goods owes no sales/use tax under these facts.

Q: Does hanging signage or assembling the store's fixtures change that?
A: No. Those are also services here, since the company supplies only labor and the store owns the signage and fixtures.

Q: What if my company is related to the customer?
A: The Department's conclusion assumed no affiliation. If you're an affiliate or subsidiary, the result could differ — consider a private letter ruling.

Q: Can I rely on this letter?
A: No. It's a General Information Letter — general guidance, not binding on the Department. The Executive Director did not formally review it.

Citations and references

Statutes and publications:
- §§ 39-26-104 and 39-26-204, C.R.S. — imposition of Colorado sales/use tax on tangible personal property
- DRP 1002 — list of self-collected home-rule jurisdictions

Source

• Landing page: Colorado Sales & Use Tax Letter Rulings
• Original PDF: GIL-08-005.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

GIL-2008-5

XXXXXXXXXXXX
Attn: XXXXXXXXX
XXXXXXXXXXXX
XXXXXXXXXXXX
February 28, 2008

Re: taxability of merchandising and related services
Dear XXXXXXXXX,
This letter is in response to your letter, both dated January 17, 2008, to the Colorado Department of
Revenue regarding the taxability of merchandising and related services.
Issue
Does sales tax apply to the following:
1. Merchandising
2. Signage
3. Fixtures
Background
The company is contemplating performing merchandising and related services in Colorado. The
company’s customers will be large retail stores. The company will provide only labor. Customers will
own any tangible personal property, such as fixtures, merchandise, signage, etc. The company will
provide three types of service.
Merchandising. The company will stock, arrange, or rearrange, the store’s merchandise on the
store’s shelves and display fixtures, in a manner that will achieve the most efficient and attractive
placement.
Signage. The company will hang up the store’s large signs and displays, usually on aircraft cables
draped over rafters and secured by zip ties. Signs are intended to stay up for five to six years.
Fixtures. Stores will provide their own gondolas, shelves, and similar display fixtures. These units
may be new or used and will be disassembled when provided to the company. The company will
assemble the fixtures prior to stocking them with merchandise. Most of the fixtures will be free

standing, although the company occasionally will have to secure a unit to the floor by metal anchor
straps in order to meet seismic requirements.
Discussion
Colorado levies sales and use tax on the sale, use, storage, or consumption of tangible personal
property. §39-26-104 and 204, C.R.S. In general, Colorado does not levy sales tax on services,
except in limited circumstances that are not relevant here. The activities you describe as
merchandising, signage, and fixtures, appear to be services. You represent that the company does
not own the merchandise, signage, or fixtures. You do not disclose, and, therefore, I assume that,
the company is not an affiliate, subsidiary, or in some other fashion related to customers (other than
as parties to the contracts for services described above). If my assumption is not correct, my
determination here may be different. Under the circumstances you present, the company does not
incur sales or use tax liability for the activities you describe.
The company’s customers clearly have a number of sales and/or use tax obligations regarding the
merchandise, signage, and fixtures. However, these are not the company’s obligation under the facts
disclosed here. I do not understand you to request a determination of the sales or use tax obligations
of the company’s customers.
Please note that the information in this response concerns sales and use taxes administered by the
department. These taxes include state administered city, county, and special district sales and use
taxes. Colorado has a number of home-rule cities and counties that are not administer by the
department. Moreover, the department does not administer business personal property taxes. For
information about state administered local taxes, home-rule cities and counties, and the taxes they
levy, see department publication DRP 1002. You can view and download this publication and a
variety of other sales and use tax information by visiting our web site at: www.revenue.state.co.us
and go to Taxation > Forms > Business Taxes > Sales Tax > DRP 1002.
Finally, the Department makes a good faith effort to provide accurate and complete answers to
questions posed to it by taxpayers. However, the information and answers provided here are not
binding on the Colorado Department of Revenue, nor do they replace, alter, or supersede Colorado
law and regulations. The Executive Director, who by statute is the only person having authority to
bind the Department, has not formally reviewed and/or approved this response.
Respectfully,

Office of Tax Policy
Colorado Department of Revenue