Is audiovisual equipment a 'construction and building material,' and can a contractor buying it for a tax-exempt project use the contractor's exemption certificate?
Plain-English summary
An audiovisual systems retailer/integrator — it plans, designs, sells, installs, and services A/V, telepresence, and broadcast systems — asked whether the equipment it sells is a "construction and building material," and if so, whether a contractor buying it for a tax-exempt entity's project can use the contractor's exemption certificate. The gear includes monitors, speakers, amplifiers, microphones, cameras, projectors, racks, and cabling, often bolted to walls/ceilings/floors, and the company usually sells to contractors using lump-sum contracts.
The Department's answer turns on what counts as a building material and who is a contractor versus a retailer.
Two installation rules first. When tangible personal property is installed into real property, (1) a contractor on a lump-sum contract pays sales tax on the building materials itself and doesn't collect from the owner; on a time-and-material contract, the owner pays the tax, collected by the contractor on the price of the materials (SR-10).
Is A/V equipment a building material? Generally no. Building materials are things incorporated into the structure so deeply they can't be removed without substantial damage. The Department said it does not do the kind of work it traditionally classifies as electricians' work, and it is reluctant to classify installers of A/V equipment, entertainment systems, and burglar alarms as construction contractors, because that equipment isn't a building material and generally isn't a fixture of real property. So it would likely treat the company as a retailer, not a contractor. (The only item that might be a building material is the VGA/HDMI input plates, if permanently attached.)
What that means for the exemption. A contractor who buys tangible personal property that is not a building material is treated as a retailer who resells the property to the owner. So the "contractor" must give the supplier a valid exemption certificate and buy the gear tax-free as a wholesale purchase for resale, then separately state the price of the equipment (including markup) on the invoice to the owner and collect sales tax on that resale. But if the real property owner is a tax-exempt entity, the contractor pays no tax to the supplier (with a valid exemption certificate) and collects no tax on the sale to the exempt owner.
What this means for you
A/V integrators and low-voltage installers
You're likely a retailer, not a construction contractor, for sales/use tax — your equipment isn't building material and generally isn't a fixture. That means: don't just eat sales tax on a lump-sum job as if you were a contractor buying building materials. Instead, buy your equipment for resale (give your supplier an exemption certificate), separately state the equipment on the customer invoice, and collect tax on the resale — unless the owner is tax-exempt, in which case you buy and sell it tax-free with the proper certificate. Watch for any genuinely permanent items (e.g., input plates) that could be treated as building material.
Contractors and building-material suppliers
Don't assume the contractor's exemption-certificate path for building materials applies to A/V gear — it's resale property, handled under the resale rules, not the building-materials rules. Suppliers should expect a resale exemption certificate from A/V installers, not a contractor building-materials claim.
Accountants and tax professionals
The classification hinges on the building-material definition (incorporated so it can't be removed without substantial damage; Rule 39-26-102.15) and on fixture status. Because A/V equipment fails both, the installer is recast as a reseller: tax-free purchase for resale, separately stated, tax collected on resale — with the tax-exempt-owner override. SR-10 supplies the lump-sum/time-and-material backdrop. Compare the contractor-certificate mechanics in [[gil-15-002-contractor-exemption-certificates]].
Common questions
Q: Is audiovisual equipment a "construction and building material" in Colorado?
A: Generally no. It's removable and usually not a fixture, so it doesn't meet the building-material definition. Only permanently attached items like VGA/HDMI input plates might qualify.
Q: Is an A/V installer a construction contractor for sales-tax purposes?
A: The Department would likely treat it as a retailer, not a contractor, because the equipment isn't a building material or fixture.
Q: How does an A/V installer handle tax then?
A: Buy the equipment tax-free for resale (with an exemption certificate), separately state it on the customer's invoice, and collect sales tax on the resale.
Q: What if the project owner is tax-exempt (e.g., a government or charity)?
A: With a valid exemption certificate, the installer pays no tax to the supplier and collects no tax from the exempt owner.
Q: Can I rely on this letter?
A: No. A General Information Letter is general guidance and is not binding on the Department; it makes no determination on any specific facts and uses "likely" language. It also doesn't cover self-collected home-rule city taxes.
Citations and references
Statutes and rules:
- § 39-26-104, C.R.S. (imposition of sales/use tax on TPP; services generally not taxed)
- 1 CCR 201-5, Special Regulation 10 (contractors; lump-sum vs. time-and-material)
- 1 CCR 201-4, Rule 39-26-102.15 (tangible personal property / building materials; removal-without-substantial-damage test)
- Department Rule 24-35-103.5 (GIL / PLR procedure)
Related rulings in this library:
- [[gil-15-002-contractor-exemption-certificates]] (contractor exemption certificates and refunds)
Source
- Landing page: Colorado Sales & Use Tax Letter Rulings
- Original PDF: GIL-15-011.pdf
Original ruling text
Office of Tax Policy, P.O. Box 17087, Denver, CO 80217-0087 ([email protected])
GIL-15-011 — July 22, 2015
Re: Audio Visual Equipment
You submitted on behalf of your client (the "Company") a request for guidance to determine whether audio visual equipment is a building material. […] The Department initially treats your request as one of a general information letter.
Issues
- Does the equipment Company sells meet the definition of "construction and building material"?
- If the equipment does meet the definition of "construction and building material", does an exemption under the contractor's exemption certificate apply to such equipment being sold by a retailer to a construction contractor performing a construction project for a tax-exempt entity?
Background
Company is an audio visual systems retailer headquartered outside of Colorado, but has employees in a sales and technical service office in Colorado. Company provides audio visual, telepresence, and broadcast systems integration to its customers. It plans, designs, sells, integrates, and services audio visual equipment. […] The equipment generally purchased from Company includes video monitors, speakers, amplifiers, wireless microphone systems, antennas, video cameras, projectors, video conferencing camera controllers, racking hardware, conductors, cabling, and miscellaneous supplies. The equipment may be placed on wheeled carts to remain portable, or may be bolted to the walls, ceilings, or floors. In addition to the equipment, the sales agreements may also include systems design, integration labor, and programming. [Detailed integration steps follow: infrastructure behind walls/ceilings/floors, monitors hung with bolted mounts, niches in walls, speakers on support grid wires, projectors on the ceiling grid with aircraft cable, equipment racks bolted to floors, cameras bolted to walls, VGA and HDMI input plates in floor boxes or recessed in walls, low-voltage cable routed to each device, etc.] Company generally sells its equipment to contractors who use lump-sum contracts. Thus, the question at issue is the material is a building material so that the contractor is able to claim the contractor's exemption.
Discussion
In general, the sale of tangible personal property is subject to sales and use taxes. [§ 39-26-104, C.R.S.] The sale of services are generally not subject to sales taxes unless the services are part of bringing the finished product to market or are an inseparable part of a sale of tangible personal property.
There are two rules that apply to tangible personal property that is installed into real property. The first relates to contractors and whether the contractor uses a lump-sum or time-and-material contract with the real property owner. A contractor who uses a lump-sum contract pays sales tax on building materials and supplies. Sales tax is not assessed on, or collected from, the owner. If the contractor uses a time-and-material contract, then sales tax is paid by the owner and collected by the contractor on the price of the building materials. [1 CCR 201-5, Special Regulation 10.]
Company does not perform the type of work that we have traditionally classified as the work of electricians. We are reluctant to classify installers of audio / visual equipment, entertainment systems, burglar alarms, and similar equipment as construction contractors, primarily because the equipment they install is not considered building materials and the equipment is generally not fixtures of real property. For this reason, we would likely not treat Company as a contractor but as a retailer. [Building materials are generally materials that are incorporated into the structure to such an extent that they cannot be removed without substantial damage to the structure. The VGA and HDMI input plates appear to be the only material that may be treated as building material if it is permanently attached to the structure. See Department Regulation 1 CCR 201-4: 39-26-102.15.]
A contractor who purchases tangible personal property that is not a building material will be treated as a retailer who resells the property to the real property owner. In such cases, the contractor must provide a valid exemption certificate to the supplier and purchase the property exempt from sales tax as a wholesale purchase for resale. The contractor must separately state the price of such materials or equipment, including any mark-up, on the invoice to the owner and collect sales tax on such resales. However, when the real property owner is a tax exempt entity, the contractor does not pay sales tax to the supplier, provided a valid exemption certificate is received by the supplier. In such cases, the contractor does not collect sales tax on the sale of the property to the real property owner because the owner is exempt from tax.
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.
(Condensed from the official PDF; see the linked source for the complete text and footnotes.)