Does a 'third-party intermediary' that arranges and marks up repair/maintenance work for retailers have Colorado sales tax liability on its markup?

Plain-English summary

A representative asked whether a client that provides "third-party intermediary services" has Colorado sales tax obligations. The client's model: retailers nationwide that need repair or maintenance (e.g., replacing a broken window, monthly window-washing) call the client; the client locates a local contractor, contracts with that contractor, and pays the contractor (including any sales tax the contractor charges). The client then bills the retailer the contractor's invoice plus an intermediary charge (a markup), and does not charge sales tax on either the intermediary fee or the contractor's invoice.

The Department declined to make a determination. It explained that it had recently addressed the same issues in GIL 2009-001 (enclosed for the requester), and that — as in that letter — it is not possible in a general information letter to determine the relationship among the parties described. The request also lacked sufficient information to make such a determination. For a specific, binding answer about the markup charge, the requester must submit a private letter ruling.

Why the relationship matters (the unanswered question). Whether the intermediary owes Colorado tax — and on what — turns on how the law characterizes the parties' dealings: Is the intermediary reselling the contractor's work to the retailer (which could make the marked-up amount part of a taxable sale)? Is it acting as the retailer's agent (merely passing through the contractor's charge)? Or is it providing its own service? Each characterization can lead to a different result, and the Department said it can't resolve that without the detailed facts a PLR requires.

What this means for you

Intermediaries, brokers, and service aggregators

If you mark up subcontracted work and re-bill a customer, don't assume the markup is automatically tax-free. Your tax treatment depends on whether you're a reseller, an agent, or a service provider — a fact-intensive question. The safest path to certainty is a private letter ruling with full facts about your contracts, who bears risk, who holds the customer relationship, and how the contractor's tax is handled.

Accountants and tax professionals

The pivot is party relationships and the nature of the underlying charge, not the label "intermediary fee." Gather the contracts and document the agency/resale/service characterization before concluding the markup escapes tax — and consider GIL 2009-001 and a PLR for a binding determination.

Common questions

Q: Does a service intermediary owe Colorado sales tax on its markup?
A: The Department didn't decide. It depends on the legal relationship among the intermediary, contractor, and retailer — whether the intermediary is reselling, acting as an agent, or providing its own service.

Q: Why wouldn't the Department just answer?
A: A general information letter can't determine the parties' relationship, and the request lacked sufficient facts. The Department pointed to GIL 2009-001 and invited a private letter ruling.

Q: How do I get a binding answer?
A: Submit a private letter ruling request (with the required information and fee) detailing the contracts and the parties' roles.

Citations and references

Authorities:
- General Information Letter GIL 2009-001 (relationship among parties; markup taxability — prior guidance)
- Regulation 24-35-103.5 (procedure for general information letters and private letter rulings)

Related rulings

• [[gil-11-004-sales-tax-collection-by-auctioneers]] — when a middleman is a retailer/agent for tax-collection purposes
• [[plr-10-003-private-letter-ruling-re-food-service-company]] — independent contractor vs. agent; who is the retailer
• [[plr-10-004-private-letter-ruling-dear]] — true object and who is the user/consumer in a service relationship

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-09-014.pdf

Original ruling text

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

GIL-09-014
July 7, 2009
XXXXXXXXXXXXXX
Attn: XXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
Re: Sales tax liability of intermediaries
Dear XXXXXXXXX,
This letter is in response to your request for a determination whether your client has sales tax
obligations in Colorado. I apologize for the delay in responding to your request. The
Department has promulgated a regulation governing the issuance of general information letters
and private letter rulings. A general information letter provides a general overview of the
applicable tax law, does not provide a specific determination, and is not binding on the
department. A private letter ruling is a determination of the applicability of tax to a specific set of
circumstances and is binding in the department. A party requesting a private letter ruling must
provide certain information and remit a fee. For more information about general information
letters and private letter rulings, please refer to the Department’s regulation 24-35-103.5,
C.R.S., which is available on our web site at: www.colorado.gov/revenue/tax.
Although you ask for a determination, your request does not contain the information required for
a private letter ruling. I will initially treat your request as one for a general information letter.
You may resubmit this request for a private letter ruling.
Issue
Does your client have sales tax liability in Colorado?
Background
You state that your client provides “third party intermediary services” to retailers throughout the
country. Retailers, which require various repair or maintenance service, call your client, which
will then locate a repair or maintenance contractor in the retailer’s area. The client will enter into
a contract with the contractor to perform the necessary repair or maintenance services for the
retailer. For example, the retailer may require the replacement of a broken window or monthly
window washing services. The client will pay the contractor, including any sales tax charged by
the contractor. The client then will bill the retailer the cost of the contractor’s invoice and an
intermediary charge. The client does not charge sales tax on the intermediary fee or on the
contractor’s invoice.

Discussion
The department recently addressed the issues you raise in General Information Letter GIL2009-001, a copy of which I enclose. As noted in that letter, it is not possible in the context of a
general information letter to determine the relationship among the parties you have described.
Moreover, the letter does not contain sufficient information to make such a determination. If you
would like an specific determination regarding this mark-up charge, you must submit this
request as a private letter ruling.
The department has a number of tax publications and other resources that are available to
taxpayers. These are available on the Department’s web site at: www.taxcolorado.org.

Miscellaneous
Pursuant to state law and department regulation 24-35-103.5, the Department will make public a
redacted version of this letter. Your letter requesting this general information letter is not made
public. 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 objection concerning the
redacted letter.
Sincerely,

Office of Tax Policy
Colorado Department of Revenue

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