How does Colorado tax commercial signs and the related charges—installation, removal, crating, freight, city permits, electrical hookup, and subcontracted repairs—on a customer's invoice?

Plain-English summary

An out-of-state sign company (with a Colorado sales office) makes pole signs, building signs/letters, awnings, interior menu/"Open" signs, and door vinyl, and installs them through a subcontractor, billing the customer for the sign, the sub's charge plus a markup, and marked-up freight. It asked how Colorado taxes the signs and a list of related invoice charges.

1. The signs themselves — generally taxable. Signs are tangible personal property and taxable (§ 39-26-104(1)(a)). TPP excludes property that loses its identity by becoming an integral and inseparable part of realty and is removable only with substantial damage (Reg (39)26-102.15) — but bolting a sign down doesn't automatically make it realty, and most commercial signage doesn't become part of the real property. The Department couldn't make that fact determination in a GIL.

2. The related charges:
- Installation / removal of old signs: services after manufacture, not taxable unless inseparable from the sale (A.D. Stores, 19 P.3d 680). Inseparable services are those the customer has no realistic option but to buy from the seller.
- Crating: the manufacturer's purchase of crating to ship goods is an exempt wholesale purchase (Special Regulation (Sales) 9), even if later itemized — but the manufacturer's sale of that crating to the customer is taxable TPP.
- Freight / transportation: generally not taxable unless inseparable (no realistic option but the seller's transportation) or it's "freight-in" (moving goods from the producer/manufacturer to the seller) — freight-in is not exempt (Special Regulation 18).
- City permits: the price includes governmental fees the seller owes (except federal taxes). A city permit, though, is usually the building owner's obligation — and if so, it's excluded from tax even if the contractor pulls it as the owner's agent. If the permit is the contractor's obligation, it's included in the tax base.
- Material and labor to connect the sign to electricity: contractor rules apply — a time-and-material contractor charges tax on the materials but not the labor; a lump-sum contractor is the consumer of the property, pays tax on its own purchases, and does not charge the customer tax (FYI Sales 18, Special Regulation 10).

3. Repairs by independent (electrical) contractors: same time-and-material vs. lump-sum framework, traced through the subcontractor → general contractor → customer chain:
- Sub on a lump-sum contract with the GC: the sub is a service provider/consumer of the repair parts and owes use tax on them; neither the GC nor the customer pays tax on the parts.
- Sub on time-and-material with the GC, GC on time-and-material with the customer: the sub's sale of parts to the GC is an exempt wholesale (resale), and the GC charges the customer tax.
- Sub on time-and-material with the GC, but GC on lump-sum with the customer: there's no resale to the customer, so the sub's sale to the GC is not exempt — the GC pays tax to the sub, and the GC (a service provider/consumer under its lump-sum contract) doesn't charge the customer for the parts.

4. Local taxes: state plus city/county/special-district sales and use taxes. Statutory cities can levy a sales tax but only a use tax on building materials and supplies. The Department administers state tax, statutory-city sales tax, and special districts; home-rule cities self-administer (see DRP 1002, FYI Sales 62, and the Department's local-tax-by-address lookup).

What this means for you

Sign companies and installers

Treat the sign as taxable TPP unless you can genuinely show it becomes part of the building (rare — bolting it on isn't enough). Then handle each line by the separability test: optional install/removal done after manufacture is untaxed; freight is untaxed only if the customer had a real alternative (and watch out for freight-in); crating you sell is taxable even though you bought it tax-free for resale.

Electrical hookup and repairs hinge on your contract type

For anything that looks like construction work (wiring the sign, repairs), your contract structure decides the tax. Time-and-material: tax the materials, not the labor, and your subs' parts can flow through as resale. Lump-sum: you're the consumer — pay tax on your purchases and don't bill the customer tax on parts. Map the contract type at each link of the sub→GC→customer chain, because a lump-sum link breaks the resale chain and shifts who eats the tax.

City permits: know whose obligation it is

A permit that's legally the owner's obligation stays out of your taxable base even if you pull it for them. Only when the permit is your (the contractor's) obligation does it ride into the tax.

Mind home-rule and statutory-city quirks

Home-rule cities run their own tax and may reach signs differently. And statutory cities can impose a use tax on building materials even where the sales-tax picture differs. Use DRP 1002 and the address lookup before quoting tax.

Common questions

Q: Is a commercial sign taxable, or is it part of the building?
A: Generally taxable tangible personal property. Most signage doesn't become an integral, inseparable part of realty — bolting it down isn't enough. A genuine fixture analysis is fact-specific.

Q: Do I tax installation and removal charges?
A: No, when they're separable services performed after manufacture and the customer has a real option to decline. They become taxable only if inseparable from the sale.

Q: I buy crating tax-free — is it taxable when I bill the customer for it?
A: Yes. Your purchase of crating is an exempt wholesale purchase, but selling/itemizing it to the customer is a taxable sale of tangible personal property.

Q: Is the city permit fee taxable?
A: Not if the permit is the building owner's obligation (the usual case), even if you obtain it as their agent. It's taxable only if it's your obligation as the contractor.

Q: How is the electrical hookup or a repair taxed?
A: By contract type. Time-and-material: tax the materials, not the labor. Lump-sum: you're the consumer, pay tax on your purchases, and don't charge the customer tax on the parts.

Q: Can I rely on this letter?
A: No. It's a General Information Letter — general guidance, not binding on the Department, and not a determination on the company's specific signs.

Citations and references

Statutes, regulations, and cases:
- § 39-26-104(1)(a), C.R.S. — imposition of sales tax on tangible personal property
- § 39-26-102(12), C.R.S. — purchase price includes materials and services performed in connection with the sale
- Department Regulation (39)26-102.15 — TPP excludes property that becomes an integral/inseparable part of realty (removable only with substantial damage)
- Department Special Regulation 18 (transportation charges); Special Regulation (Sales) 9 (crating as wholesale purchase); Special Regulation 10 and FYI Sales 18 (contractors; time-and-material vs. lump-sum)
- DRP 1002 (local jurisdictions); FYI Sales 62 (collecting local tax)
- A.D. Stores Co. v. Department of Revenue, 19 P.3d 680 (Colo. 2001) — separable services are not taxable

Related Colorado contractor/separability letters:
- [[gil-08-009-taxability-of-telecommunications-tower]] — contractor/consumer framework; realty vs. TPP
- [[gil-08-020-taxability-of-certain-goods-and-services]] — separability of services; equipment leases
- [[gil-08-011-hostess-dollars]] — transportation-charge separability

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-08-027.pdf

Original ruling text

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

GIL-2008-27
October 16, 2008
XXXXXXXXXXXXX
XXXXXXXXXXXXX
XXXXXXXXXXXXX
XXXXXXXXXXXXX
Re: Ruling Request – commercial signage and installation

Dear XXXXXXXXX,
The department has reviewed your letter dated February 21, 2008. First, let me
apologize for the delay in responding to your request. The department recently
acquired the staff needed to respond to these types of requests. The department also
recently enacted a regulation governing requests for tax advice. We issue both private
letter rulings and general information letters. See, §24-35-103.5, C.R.S. and
Department regulation 24-35-103.5. Private letter rulings are issued in response to tax
questions addressed to specific factual settings and are binding on the department.
General information letters are issued in response to general tax questions and are not
binding on the department.
I am initially treating your request as a request for a general information letter. As
noted above, general information letters are general discussions of tax law and are not
a determination with respect to any particular factual setting. For this reason, this letter
is not a determination that the company’s products fall within any exemption. If you
would like a private letter ruling, please take a moment to review the regulation and
resubmit your request with the necessary information.
Issues
You ask a series of questions regarding the taxability of signs manufactured and installed
by your company. Specifically, you ask:
1. What is taxable to your customers for various types of signs, described below?

2. How does tax apply to the following charges that may appear on a customer’s
invoice?
• Installation
• Removal of old signs
• Crating
• Freight
• City permits
• Material and labor to connect the sign to electricity
• Patch and paint the building where the old signs were removed
• Preliminary survey to determine what signs are needed
3. What is taxable when you hire an independent contractor to do repairs on signs?
4. What local taxes should you collect?
Background
Your company is located in [another state] and it has a sales office in Colorado. The
company manufactures a variety of signs, including pole signs (but not billboards), building
signs and letters, building awnings and interior signs such as menu boards and “Open”
signs. Generally, you describe these signs as “permanent” electrical signs bolted to the
walls or concrete base. The company also furnishes and installs door vinyl showing the
hours of business operation. If signs require installation, the company contracts with a
subcontractor who installs the signs. The company issues the customer an invoice, which
includes the cost of the sign, the subcontractor’s charge, and a mark up to the
subcontractor’s charge. The company ships the signs by common carrier, the charge for
which is marked up and separately stated on the customer’s invoice. You state that
ownership of the signs passes to the customer after installation and payment in full.
Discussion
1. Taxability of signs.
Colorado levies sales tax on the sale of tangible personal property. See, 39-26-104(1(a),
C.R.S. However, tangible personal property does not include property that loses its identity
when it becomes an integral and inseparable part of the realty and is removable only with
substantial damage to the premises. Department Regulation (39)26-102.15, C.R.S. The
fact that property is bolted to the real property does not necessarily mean that the property
is an integral and inseparable part of the realty. Generally speaking, most commercial
signage does not fall within this exemption because most signage does not become an
integral and inseparable part of the real property. In any event, it is not possible with the
facts you provide, nor appropriate in the context of a general information letter, to determine
whether the company’s signs fall within this exemption.
2. Related service charges.
You have listed a variety of charges that may apply. In general, sales tax is imposed on,
“the full purchase price of article sold after manufacture or after having been made to order
and includes the full purchase price for material used and the service performed in
connection therewith, …. Except as otherwise provided …, the sales price is the gross

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value of all materials, labor, and service, and the profit thereon, included in the price
charged to the user or consumer.”
§39-26-102(12), C.R.S. However, services that are separable from the sale of tangible
personal property are not taxable. A.D. Stores v. Department of Revenue, 19 P3d 680
(Colo.2001). Inseparable services are generally those that the customer has no realistic
option but to acquire from the retailer.
a. Charges removal of old sign and installation of new sign.
Colorado does not impose sales or use tax on services incurred after manufacture, unless
the services are inseparable from the sale of the property. A.D Stores v Department of
Revenue.
b. Crating.
A manufacturer’s purchase of crating used to ship tangible personal property to the
consumer is an exempt wholesale purchase, regardless of whether the manufacturer
subsequently itemizes the crating in the invoice to the customer. See, Department Special
Regulation (Sales) 9. However, the manufacturer’s subsequent sale of the crating to the
consumer is a sale of tangible personal property and, as such, is subject to sales tax. §3926-104(1), C.R.S.
c. Transportation charges.
Transportation charges related to the purchase of tangible personal property are generally
not taxable, unless they are either inseparable from the sale or are freight-in charges. If a
purchaser has no realistic option but to use the transportation services of the seller, then
the transportation charge is not separable and is taxable. See, Department Special
Regulation 18 “Transportation Charges.” Freight-in charges are “[t]ransportation charges
incurred in connection with transporting tangible personal property from the place of
production or the manufacturer to the seller or to the seller's agent or representative, or to
anyone else acting in the seller's behalf, either directly or through a chain of wholesalers or
jobbers or other middlemen, are deemed "freight -in" charges and are not a transportation
charge exempt from tax.”
d. City permits.
In general, the purchase price upon which sales tax is calculated is the gross value of all
property and services included in the price charged to the purchaser. This includes
governmental fees and taxes (except federal taxes) owed by the seller. For example, a
lessor is typically obligated to pay business personal property tax on property it rents to a
lessee and the lessor must include this tax in the sales tax calculation.
City permits present a slightly different issue. It is my general understanding that a city
permit is ultimately an obligation of the building owner, not the contractor. This is true even
though the contractor may, for the convenience of the building owner, obtain the permit as
an agent of the owner. If the city permit is the responsibility of the owner, the tax should be
excluded from the calculation of sales tax. Conversely, if the permit is not the obligation of

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the owner but, rather, the obligation of the contractor, then the permit fee is included in the
calculation of sales tax.
e. Material and labor to connect the sign to electricity.
See, response to 1(a), above. A contractor who charges construction services on a time
and material basis should charge sales tax on the value of the property, but not the labor.
A contractor who charges on a lump sum basis is deemed the consumer of the property
and, therefore, should pay tax on its acquisition of the property and not charge the
customer sales tax. See, generally, FYI Sales 18 and Special Regulation 10.
3. Repairs performed by independent electrical contractors.
See response to 1(a), above. The taxability of charges to a customer for the electrical
repair work and repair parts will depend on whether the company enters into a time and
material contract or a lump sum contract with the customer. See FYI Sales 18 and Special
Regulation 10. Whether the subcontractor owes tax will depend both on the type of
contract it has with the general contractor and on the type of contract the general contractor
has with the customer. The subcontractor must pay use tax on the repair parts if it enters a
lump sum contract with the general contractor. This is because the subcontractor is
deemed to be providing a service to the general contractor and, therefore, the
subcontractor is the consumer of the repair parts. Under this circumstance, neither the
general contractor nor the customer will pay use or sales tax on the repair parts.
If the contract between the subcontractor and the general contractor is a time and material
contract, then the subcontractor’s sale of the repair parts to the general contractor is
considered an exempt wholesale sale if the general contractor has also entered into a time
and material contract with the customer. The general contractor must charge the customer
for sales tax under these circumstances.
If, on the other hand, the general contractor has entered into a time and material contract
with the subcontractor and a lump sum contract with the customer, then the general
contractor must pay sales tax to the subcontractor. This is because the general contractor
does not, under a lump sum contract, resell the repair parts to the customer. Because
there is no resale to the customer, the sale from the subcontractor to the general contractor
is not an exempt sale for resale. In turn, the general contractor does not charge tax to the
customer for the repair parts because, again, under a lump sum contract, the general
contractor is considered a service provider and it, not the customer, is the consumer of the
repair parts.
You can find more information about how and when taxes are paid and collected by
contractors in the Department’s FYI Sales 18 and Special Regulation 10, both of which are
available on our web site.

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4. Applicable taxes
The state levies a state sales and use tax. Cities, counties and special districts also levy
sales and use tax. Statutory cities can levy a sales tax, but can levy only a use tax on
building materials and supplies. The department administers the state taxes and the sales
tax for statutory cities and special districts. Home-rule cities generally administer their own
sales and use taxes. Department Publication 1002 (DRP 1002) has a complete listing of
cities, counties and special districts, together with their tax rates and exemptions.
Department Publication FYI Sales 62 provides a general outline for when and how to
collect and report local sales and uses taxes.
The department has numerous resources to assist retailers with sales and use tax
questions. These resources are easily accessed on the department’s web site at:
www.revenue.state.co.us. Click on “Taxation” > “Publications / Resources” and select
FYI’s, Regulations or Tax Information Index. DRP 1002 is found under “Forms.” You can
also easily access an on-line Sales Tax Information System to find sales and use taxes for
all cities, counties, and special districts in Colorado. I also encourage you to take
advantage of an electronic database to determine what local jurisdictions apply to a given
address. This system is located on our web site under “On-line Services” > “Sales Tax
Information” > “Local Taxes by Address.”
Pursuant to state law, the Department will make public a redacted version of this letter.
Your letter requesting this informational letter is not made public. See, §24-35-103.5(13),
C.R.S. The regulation governing private letter rulings and informational letters is available
on our web site at:
http://www.revenue.state.co.us/taxstatutesregs/3921reg24-35-103.5.html.
I enclose a proposed redacted version of this letter. Please contact me within 60 days from
the date of this letter if you have any questions, comments or concerns about the redacted
letter.
Sincerely,

Office of Tax Policy
Colorado Department of Revenue

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