Are a sign company's entry towers installed at car dealerships taxed as real-property fixtures, and does lump-sum vs. time-and-material billing change who pays?

Plain-English summary

A sign and visual-communication company sells "entry towers" — freestanding structures that decorate and display signage on the front of commercial buildings like car dealerships, installed into a concrete foundation on anchor bolts. The company buys the towers as finished goods from manufacturers and hires third parties to install them, invoicing either the customer or the general contractor building the customer's building; the invoice bundles the tower, supplies, freight, and installation labor. It asked how Colorado sales/use tax applies.

The Department's analysis turns on two questions: are the towers fixtures, and how is the job billed?

• Fixture? Colorado's contractor rules apply to people who incorporate tangible personal property into real property. A fixture is TPP affixed to real property that can't be removed without substantial damage (Reg 39-26-102.15); the Department weighs several factors, including the parties' intent (GIL 08-009). The towers it viewed appear so affixed as to be an integral part of the structure — but their removal doesn't appear to cause substantial damage, so the Department couldn't determine in a GIL whether they're actually fixtures.
• If they ARE fixtures, the tax depends on the contract type the company uses (as contractor with the owner, or as subcontractor with the general contractor):
• Lump-sum: the company (or sub) doesn't collect tax from the owner/GC. Instead it pays sales tax when it acquires the tower from the supplier/manufacturer — or use tax if the manufacturer doesn't charge sales tax, computed on the price paid to the manufacturer and excluding the company's installation labor.
• Time-and-material: the company collects sales tax from the owner/GC on the marked-up price of the materials (the tower) but not on the labor (installation).
• Local taxes: a contractor collects state-administered local sales tax whenever state sales tax is due; if it remits state use tax, it also remits local use tax in the jurisdiction where the tower is ultimately installed; under a time-and-material contract it collects state + local sales tax in the jurisdictions where the towers are delivered to the GC/owner.

What this means for you

Sign companies, fabricators, and installers of affixed structures

First decide whether what you install is a fixture (can't be removed without substantial damage, considering intent) — that's what pulls you into the contractor rules. If it is, your billing method picks your tax role: lump-sum makes you the consumer (pay tax on your cost of the materials; use tax excludes your labor), while time-and-material makes you the retailer (charge the customer tax on marked-up materials, not on installation labor). The bundled invoice (tower + freight + labor) doesn't change the analysis — the billing structure does.

Car dealerships and property owners buying signage

How you're billed determines whether tax shows up on your invoice. Under lump-sum, you won't see separately charged tax (the company already paid it on its cost); under time-and-material, expect tax on the marked-up tower price but not the installation labor.

Accountants and tax professionals

Two-step: a fixture determination (Reg 39-26-102.15 + intent factors, GIL 08-009 — substantial-damage-on-removal is the sticking point here), then SR-10 contractor treatment (lump-sum = consumer pays on acquisition / use tax excludes installer labor; T&M = retailer collects on marked-up materials, not labor). Local sourcing differs by method (use tax where installed; T&M sales tax where delivered). Contractor/fixture cousins: [[plr-13-004-private-letter-ruling]], [[gil-13-011-plumber-s-fees]], [[gil-15-015-contractor-pay-tax-when-billing-on-a-time-and-material-contract]], [[gil-14-002-modular-homes]]. Watch the home-rule-city caveat below.

Common questions

Q: Are entry towers taxed as real property or tangible personal property?
A: It depends on whether they're fixtures — TPP so affixed it can't be removed without substantial damage (Reg 39-26-102.15). The Department couldn't decide in a GIL because removing these towers didn't appear to cause substantial damage.

Q: If they're fixtures, who pays the tax?
A: It depends on billing. Lump-sum: the company is the consumer and pays tax on its cost of the tower (use tax excludes installation labor). Time-and-material: the company collects tax from the owner/GC on the marked-up tower price, not on installation labor.

Q: Is installation labor taxable?
A: No. Under time-and-material, tax is on the marked-up materials, not the installation labor; under lump-sum, use tax is computed on the cost of the tower and excludes the company's installation labor.

Q: Where is the local tax sourced?
A: For use tax, to the jurisdiction where the tower is ultimately installed; under a time-and-material contract, sales tax is collected where the towers are delivered to the GC/owner.

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

Regulations and guidance:
- Department Regulation 39-26-102.15 (definition of "fixture")
- Department Special Regulation SR-10 (Contractors; lump-sum vs. time-and-material)
- GIL 08-009 (factors for determining whether property is a fixture)

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-13-018.pdf

Original ruling text

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

GIL-13-018
August 8, 2013
XXXXXXXXXXXXXX
ATTN: XXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
XXXXXXXXXXXXXX
Re: Entry Towers
Dear XXXXXXXXX,
You submitted on behalf of XXXXXXXXXXXXX (“Company”) a request for guidance to
determine whether entry towers at car dealerships are real property or tangible personal
property and how taxes would apply.
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
Are company’s charges related to entry towers subject to sales or use taxes?
Background
Company is a sign and visual communication company that offers full-service signage specializing in
branding solutions. Company sells “entry towers,” which are freestanding structures that ‘decorate’
and display signage on the front of commercial buildings, such as at car dealerships. Entry towers
are installed into a concrete foundation on a series of anchor bolts.
Company purchases entry towers as finished goods from manufacturers and hires third parties to
install them. Company issues its invoice to either the customer or a general contractor who is

building the customer’s building. The invoice includes the costs of the entry tower, supplies, freight,
and labor for installation of the entry tower.
Discussion
Colorado, as do most states, has specific rules governing contractors and construction contracts.
Contractors are persons who incorporate tangible personal property into real property. The entry
towers appear, in most cases, to be fixtures to real property. A fixture is tangible personal property
that is affixed to real property and cannot be removed without substantial damage to the property.1
The Department considers a number of factors in making a determination of whether property is a
fixture, including whether the parties intended the item to be a fixture.2 Although the various entry
towers we viewed as part of the request for advice appear to be so affixed to the buildings as to be
an integral part of the structure, their removal does not appear to cause substantial damage to
property. We cannot determine in a general information letter, such as this, whether the entry towers
are, in fact, fixtures to real property.
Assuming the entry towers are fixtures, the application of sales and use tax will depend on the type
of contract Company, as a contractor, uses with the owner or, as a subcontractor, uses with the
general contractor. Contractors who charge the owner, or subcontractor who charge the general
contractor, a lump sum amount do not collect sales tax from the owner or general contractor.
Instead, the contractor (or subcontractor) pays sales tax when it acquires the building materials from
the supplier or manufacturer. If the entry tower manufacturer does not collect sales tax from
Company when Company acquires the tower, then Company must pay use tax. The use tax is
calculated on the price paid to the entry tower manufacturer and the use tax calculation does not
include Company’s labor costs for installation.
If Company uses a “time-and-material” contract with the owner or general contractor, Company must
collect sales tax from the owner or general contractor on the marked-up price of the building
materials (e.g., the entry tower) but not on the labor charges (e.g., installation charges).3
As a general rule, a contractor collects state-administered local sales taxes whenever state sales tax
is due. If a contractor remits state use tax, then the contractor also remits state-administered local
use taxes in whose jurisdiction the entry tower is ultimately installed. If Company uses a time and
material contract, Company must collect state sales tax and state-administered local sales taxes in
those jurisdictions the entry towers are delivered to the general contractor or owner.
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.
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

1
2
3

Department Regulation 39-26-102.15. This regulation, as well as other Department publications, such as FYIs
and rulings, can be viewed at www.Colorado.gov/revneue/tax > Tax Library.
See, General Information Letter GIL 08-009 for a discussion of these factors.
See Department Special Regulation SR-10, “Contractors.”

2

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

3