Is a plumber doing sewer inspection, clean-out, and thawing a taxable contractor, does itemizing equipment make it a taxable rental, and when are local taxes due?

Plain-English summary

A tax-advisory firm asked, for a plumber client who provides sewer inspection, clean-out, and thawing services and bills with separately stated time and material, three questions: (1) Is the plumber a contractor for those services? (2) Does itemizing an equipment-use charge and an operator charge turn the equipment use into a taxable rental of tangible personal property? (3) When must the plumber collect state-administered local taxes?

The Department's general guidance:

• (1) Contractor or not. Colorado's contractor rules (SR-10) apply to people who incorporate tangible personal property into real property. Under those rules, a lump-sum contractor doesn't collect tax from the client (it's the consumer of the materials), while a time-and-material contractor collects tax from the client on the materials — the split rests on when title to the materials passes. A plumber is a contractor when incorporating property into realty (e.g., installing a new water valve). But for sewer inspection, clean-out, and thawing, it isn't clear anything is incorporated; the Department's initial impression is that no tangible personal property is incorporated into real property, so the lump-sum/time-and-material contractor rules wouldn't apply — these are services.
• (2) Itemized equipment ≠ automatic rental. When a job involves a service plus equipment, the Department typically treats it as a rental of the equipment if the rental charge is separately stated (e.g., temporary event lighting). However, when the provider retains possession and control of the equipment, the Department generally views the deal as a service — notwithstanding a separately stated equipment charge. In that case the provider is the user of the equipment, pays sales tax when it acquires the equipment, and cannot collect sales tax from the client.
• (3) Local taxes. As a general rule the plumber collects state-administered local sales tax whenever state sales tax is due. For use tax, if the plumber remits state use tax it generally won't collect local use tax, because most state-administered cities and counties have no use tax — but special districts (e.g., RTD and rural transportation authorities) do levy use tax, so the plumber collects use tax for special districts.

What this means for you

Plumbers and trades doing inspection / cleaning / repair (not installation)

If your work doesn't build materials into the property — sewer inspection, clean-out, thawing — you're likely providing a service, not acting as a contractor, so the lump-sum vs. time-and-material contractor rules don't govern. And if you keep possession and control of your equipment while doing the job, separately listing an "equipment" charge won't convert it into a taxable rental: you're the consumer of that equipment (pay tax when you buy it) and you don't charge the customer a rental. When you do install property into realty (a new valve, fixtures), the contractor rules do apply.

Anyone bundling equipment with a service

Control is the test. Hand over the equipment for the customer to use → likely a taxable rental if separately stated. Keep and operate the equipment yourself → it's a service, and you owe tax on acquiring the equipment, not the customer.

Accountants and tax professionals

Two doctrines meet here: the contractor rules (SR-10, lump-sum vs. T&M, keyed to incorporation into realty and passage of title) and the service-vs-rental test for equipment (possession and control by the provider = service, even if separately stated). On local tax, remember most cities/counties have no use tax but special districts do — so use tax can be owed to a district even when no city/county use tax is. Contractor cousins: [[plr-13-004-private-letter-ruling]] and [[gil-15-015-contractor-pay-tax-when-billing-on-a-time-and-material-contract]]; equipment-control cousins [[gil-13-010-re-rental-equipment]] and [[gil-13-003-rental-and-labor-charges]]. Watch the home-rule-city caveat below.

Common questions

Q: Is a plumber a taxable contractor in Colorado?
A: Only when incorporating tangible personal property into real property (e.g., installing a new valve). For sewer inspection, clean-out, and thawing, the Department's initial impression is that nothing is incorporated, so the contractor rules don't apply and the work is a service.

Q: If I itemize an equipment charge, is it now a taxable rental?
A: Not necessarily. If you retain possession and control of the equipment, it's a service even with a separate equipment charge — and you (not the customer) owe tax on acquiring the equipment.

Q: When does the plumber collect local taxes?
A: It collects state-administered local sales tax whenever state sales tax is due. For use tax, most cities/counties have none, but special districts (like RTD) do levy use tax, so the plumber collects use tax for special districts.

Q: What's the difference between lump-sum and time-and-material for a contractor?
A: A lump-sum contractor is the consumer and doesn't collect tax from the client; a time-and-material contractor collects tax from the client on the materials. The split depends on when title to the materials passes (SR-10).

Q: Can I rely on this letter?
A: No. A General Information Letter is general guidance, not binding on the Department, and makes no determination on specific facts. It also doesn't cover self-collected home-rule city taxes.

Citations and references

Statutes and regulations:
- § 39-26-104(1)(a), C.R.S. (sales tax on tangible personal property; services generally not taxed)
- Department Special Regulation SR-10 (Contractors; lump-sum vs. time-and-material treatment)
- Special districts (RTD, rural transportation authorities) levy use tax, unlike most state-administered cities and counties

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-13-011.pdf

Original ruling text

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

GIL-13-011
April 18, 2013
XXXXXXXXXXXXXXXX
ATTN: XXXXXXXXXXX
XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX
Re: Plumber’s Fees
Dear XXXXXXXXXXX,
You submitted on behalf of XXXXXXXXXXXXX (“Company”) a request for guidance to
determine the applicability of Colorado sales and use tax on particular plumber’s fees.
The Colorado Department of Revenue (“Department”) issues general information letters and private
letter rulings. A general information letter provides a general overview of the relevant tax issues
and is not binding on the Department. A private letter ruling provides a specific determination for a
specific set of facts, is binding on the Department but not on the taxpayer, and requires payment of
a fee. For more information about general information letters and private letter rulings, please see
Department regulation 24-35-103.5 at www.colorado.gov/revenue/tax > Tax Library > Rulings.
The Department initially treats your request as one of a general information letter. If you would like
the Department to issue a private letter ruling on the issues you raise, you can resubmit a request
and fee in compliance with regulation 24-35-103.5. It is important to remember that general
information letters, such as this one, are general discussions of tax law and are not a determination
of the tax consequence of any particular action or inaction.
Issue
1. Is a plumber considered a contractor when providing sewer inspection, clean-out and thawing
services?
2. Does itemizing charges on an invoice for the use/rental of equipment and for an operator in the
performance of the service change the contractor’s use of the equipment from a contractor
service to a rental of tangible personal property?
3. When is the plumber required to collect state-administered local taxes?
Background

Company provides tax advice to clients. Company’s client is a plumber who provides sewer
inspection, clean-out and thawing services and charges fees that separately states charges for time
and material.
Discussion
The Department does not have a regulation or publication that specifically addresses your inquiry.
The following is a general discussion of the tax issues surrounding your request.
Colorado has adopted special rules regarding the application of sales and use tax for contractors.
Contractors are persons who incorporate tangible personal property into real property. Contractors
who charge clients lump-sum do not collect sales tax from clients. If the contractor charges clients
on a time-and-material basis, then the contractor collects sales tax from the client on the materials.
The distinction is based on the assumption that, in the case of a lump-sum contract, title passes to
the buyer after the property is incorporated into the real property, and, in the case of a time-andmaterial contract, title passes to the client before the property is incorporated into the real property.1
Plumbers are commonly considered contractors if they are incorporating tangible personal property
into real property. For example, a plumber is a contractor if the plumber installs a new water value
in the customer’s home. We do not have sufficient information to determine whether a plumber is
considered a contractor when providing sewer inspection, clean-out, and thawing services because
it is not clear that the plumber is incorporating anything into the real property. However, our initial
impression is that tangible personal property is not being incorporated into real property when such
services are provided, and, therefore, the rules that normally apply to lump-sum and time-andmaterial contracts would not apply.
When a transaction involves the provision of a service and equipment, the Department typically
views the transaction as the rental of the equipment if the rental charge is separately stated. For
example, if a retailer provides temporary lighting for an event and separately states a charge for
moving the lighting to the event site and a charge for the use of the lighting equipment, then the
Department will typically treat the charge for the lighting equipment as a rental of that equipment.
However, when retailer retains possession and control of equipment, then the Department will
generally view the transaction as a service, notwithstanding the fact that the retailer has separately
stated the charge for the equipment. In such cases, the retailer is the user of the equipment and
must pay sales tax when it acquires the equipment and cannot collect sales tax from the client.
As a general rule, the plumber collects state-administered local sales taxes whenever state sales
tax is due. If the plumber remits state use tax, then the plumber generally would not collect stateadministered local use taxes, because most state-administered cities and counties do not have a
use tax. However, special districts (such as RTD and rural transportation authorities) levy use tax.
Therefore, plumbers collect use taxes for special districts.
Miscellaneous
This letter represents the good faith opinion of Department personnel who are knowledgeable on
state taxes issues. However, the Department does not make a specific determination here on any
of the issues raised and the Department is not bound by this general information letter.
1 See Department Special Regulation SR-10, “Contractors, which can be viewed at www.colorado.gov/revenue/tax

Tax Library > Rules and Regulations > Final Regulations > Sales and Use Tax > SR 10.

2

The Department administers state and state-administered local sales and use taxes. This letter
does not address sales and use taxes administered by home-rule cities and home-rule counties.
You may wish to consult with local governments which administer their own sales or use taxes
about the applicability of those taxes. Visit our web site at www.colorado.gov/revenue/tax for more
information about state and local sales taxes.
Enclosed is a redacted version of this letter. Pursuant to statute and regulation, this redacted letter
will be made public within 60 days of the date of this letter. Please let me know in writing within that
60 day period whether you have any suggestions or concerns about this redacted letter.
Sincerely,

Office of Tax Policy
Colorado Department of Revenue

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