When a modular-home manufacturer sells to a builder who installs the home for a homeowner, who collects the sales tax — and how is the 52% rule applied?

Plain-English summary

A company is buying the assets of a modular-home manufacturer. The manufacturer sells homes to builders, who pick the homes up at the Colorado plant, transport them to the homebuyer's site (in or out of Colorado), affix them to the foundation, and do finish work. The question: who collects and remits the sales tax — the builder or the homeowner — and if the manufacturer doesn't collect, what documentation does it need?

The Department's framework:

• The 52% rule. Colorado levies sales tax on 52% of the purchase price of a manufactured home (§ 39-26-721). The purchase price is the price paid by the final user, and any subsequent sale of the manufactured home is not subject to Colorado sales tax. So a direct manufacturer-to-homeowner sale would be taxed on 52% of the price.
• Here the home goes manufacturer → builder → homeowner, so who pays depends on the builder's contract with the homeowner:
• Lump-sum contract. A lump-sum contract to build fixtures to real property is treated as a contract for services, and the builder is the end user/consumer of the property used (Special Rule Sales 10, "Contractors"). The builder pays sales tax to the manufacturer on 52% of the price it paid. Extra finish materials the builder later buys are taxed on 100% of their price. The homeowner owes no sales or use tax.
• Time-and-material contract. The builder is not the ultimate consumer but a retailer reselling the home. Its purchase from the manufacturer is an exempt wholesale (for-resale) purchase, and its sale to the homeowner is taxable — tax calculated on 52% of both the manufacturer's price and any markup the builder adds. Finish materials not bought from the manufacturer are taxed on the full price the builder charges the homeowner.
• Materials that aren't part of the manufactured home — the foundation, bringing electricity/utilities to the home, kitchen appliances, and window coverings — are taxed on 100% of their price (whether paid by the lump-sum builder or by the homeowner under time-and-material), not the 52% figure.
• Documentation. The manufacturer must presume the sale to a builder is taxable; the burden is on the builder to claim the wholesale exemption. Under a time-and-material contract, the builder claims it by presenting its Colorado sales tax license; the manufacturer must verify the license hasn't expired and keep a copy in case the Department asks.

What this means for you

Modular-home manufacturers

Presume the sale to a builder is taxable and collect tax on 52% of the price — unless the builder hands you a valid Colorado sales tax license to claim a wholesale-for-resale exemption (the time-and-material case). If they do, verify the license is current and retain a copy. The builder's contract type with the homeowner decides whether you collect (lump-sum) or sell exempt (time-and-material).

Builders

Your contract choice determines the tax path. Lump-sum: you're the consumer — pay tax to the manufacturer on 52% of your cost, pay 100% on finish materials, and don't charge the homeowner. Time-and-material: you're a retailer — buy the home exempt for resale with your sales tax license, then collect tax from the homeowner on 52% of (manufacturer price + your markup), and 100% on separately bought finish materials. Either way, non-home items (foundation, utilities, appliances, window coverings) are taxed on 100%.

Accountants and tax professionals

Two statutes/rules drive this: the 52% manufactured-home base (§ 39-26-721; Rule 39-26-721; subsequent sales exempt) and the lump-sum vs. time-and-material contractor split (Special Rule Sales 10). The home itself rides the 52% figure; non-home materials ride 100%. The manufacturer's audit protection is the buyer's current sales tax license retained on file. This is the manufactured-home application of the same contractor doctrine in [[gil-15-011-audio-visual-equipment]] and [[gil-15-015-contractor-pay-tax-when-billing-on-a-time-and-material-contract]].

Common questions

Q: How much of a manufactured/modular home is taxable in Colorado?
A: Sales tax applies to 52% of the purchase price of a manufactured home. A subsequent sale of the home isn't taxed again.

Q: Does the builder or the homeowner pay the tax?
A: It depends on the contract. Under a lump-sum contract the builder is the consumer and pays the tax (on 52% of its cost); under a time-and-material contract the builder resells the home and collects tax from the homeowner on 52% of the manufacturer's price plus markup.

Q: What about the foundation, utility hookups, appliances, and window coverings?
A: Those aren't part of the manufactured home, so they're taxed on 100% of their price — not the 52% figure.

Q: What documentation does the manufacturer need to sell to a builder tax-free?
A: The manufacturer must presume the sale is taxable. A builder using a time-and-material contract claims the wholesale exemption by presenting its Colorado sales tax license; the manufacturer must verify it's unexpired and keep a copy.

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

Citations and references

Statutes and rules:
- § 39-26-721, C.R.S. (sales tax on 52% of a manufactured home's purchase price; subsequent sales exempt)
- 1 CCR 201-4, Department Rule 39-26-721 (purchase price = price paid by the final user)
- Department Special Rule Sales 10, "Contractors" (lump-sum vs. time-and-material treatment)
- Department Rule 24-35-103.5 (GIL / PLR procedure)

Source

• Landing page: Colorado Sales & Use Tax Letter Rulings
• Original PDF: GIL-14-002.pdf

Original ruling text

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

GIL-14-002
January 14, 2014
XXXXXXXXXXXXXX
Attn: XXXXXXXXXX
XXXXXXXXXXXXXX
Re: Modular Homes
Dear XXXXXXXXX,
You submitted a request for guidance to determine the applicability of Colorado sales and use
tax on the purchase of a modular home manufacturer.
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
Is the builder or manufacturer of modular homes responsible for collecting and remitting the tax from
the homebuyer? If the manufacturer is not required to collect the tax, what documentation do they
need from the builder?
Background
Company is looking to purchase the assets of a modular home manufacturer in Colorado. The
manufacturer sells to builders who pick up the homes at the plant location in Colorado and transport
the homes to the end customer’s (homebuyer) location, which may be inside or outside of
Colorado. The builder affixes the home to the foundation and performs other finishing work.
Discussion

Colorado levies sales tax on fifty-two percent of the purchase price of a manufactured home.1
The purchase price is the price paid by the final user.2 Any subsequent sale of the
manufactured home is not subject to Colorado sales taxes.3 Thus, the sales tax on the sale of
a manufactured home by the manufacturer to a homeowner is fifty-two percent of the purchase
price. However, in the case you describe, the sale of the manufactured home is to a builder,
who then enters into a contract with a homeowner. The question then is whether the builder or
homeowner is liable for sales tax. This will depend on the type of contract entered into
between the builder and homeowner.
A lump-sum contract for the construction of fixtures to real property is treated as a contract for
services and the contractor providing those services is treated as the end user and consumer
of the tangible personal property used to construct such fixtures.4 This means that a builder
who uses a lump-sum contract with the homeowner must pay sales tax to the manufacturer on
fifty-two percent of the purchase price builder paid to the manufacturer. If, after the builder
purchases the manufactured home from the manufacturer, the builder purchases additional
materials to perform finish work on the manufactured home, then the builder pays sales tax (or
use tax) on the entire purchase price for those materials. The homeowner is not liable for any
sales or use tax.
If the builder uses a time-and-material contract with the homeowner, then the builder is not
treated as the ultimate consumer of the manufactured home but, rather, is treated as a retailer
who resells the home to the homebuyer. The builder’s purchase of the manufactured home
charged by the manufacturer is an exempt wholesale purchase for resale and the subsequent
sale by the builder to the homeowner is subject to sales tax. The tax paid by the homeowner is
calculated on fifty-two percent of both the price charged by the manufacturer to the builder and
the markup, if any, on the manufacturer’s price charged by the builder to the homeowner. For
materials that were not purchased from the manufacturer but purchased by the builder to
complete the finish work (e.g., plaster to finish drywall seams), sales tax is calculated on the
full price charged by the builder to the homeowner for such materials.
The sales tax on materials that are not part of the manufactured home are taxed on one
hundred percent of the price for such materials. For example, sales tax (whether paid by the
builder who uses a lump-sum contract or paid by the homeowner under a time-and-material
contract) applies to the entire purchase price of materials to construct the foundation, to bring
electricity and other utilities to the home, kitchen appliances, and window coverings are not
considered part of the manufactured home.
The manufacturer must presume that the sale to a builder is subject to tax and the burden is on
the builder to claim the wholesale purchase exemption. If the builder is using a time-andmaterial contract, the builder claims the wholesale purchase exemption by presenting its
Colorado sales tax license to the manufacturer. The manufacturer must verify that the builder’s
sales tax license has not expired and should retain a copy of the builder’s license in the event
the Department requests verification that the sale was not subject to tax.
Miscellaneous
1 §39-26-721, C.R.S.

You can view statutes on the Department’s web site at www.colorado.gov/revenue/tax > tax library

statutes.
2 Department Rule 39-26-721.
3 §39-26-721, C.R.S.
4 Department Special Rule Sales 10 “Contractors”

2

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
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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