A nonprofit client holds a 'state sales/use tax only' exemption certificate — does that exemption also cover special district, city, and county taxes on construction materials?

Plain-English summary

A contractor was starting a construction project for a client — a 501(c)(3) nonprofit — that holds an "exemption from state sales/use tax only" certificate. The contractor wanted to know whether that certificate is limited to state tax, or whether it also covers special district, city, and county taxes on the construction and building materials.

The Department's answer: the exemption effectively reaches the state-administered local taxes too — but not self-collected home-rule jurisdictions.

The chain of reasoning:

• Building materials for charitable structures are exempt at the state level. Although buying tangible personal property is generally taxable, Colorado exempts all purchases of construction and building materials by contractors and subcontractors used in the building, erection, alteration, or repair of structures owned and used by government entities, charitable organizations, and schools (§ 39-26-708(1)).
• Special-district tax follows the state. Under §§ 32-9-119(2)(a) and 32-13-107(1)(a), any item taxable or exempt under the state sales tax is likewise taxable or exempt from any state-administered special-district sales tax.
• State-administered cities and counties follow the state too. With exceptions not applicable here, state-administered cities and counties exempt the same transactions that are exempt at the state level (§ 29-2-105(1)(d)).
• Result: sales of construction/building materials to contractors for a charitable organization's structure are exempt from state, special-district, and state-administered city and county sales taxes.
• Home rule is separate. The Department does not administer the sales and use taxes of home-rule cities and counties (see the Form DRP 1002 list). The contractor must contact each home-rule jurisdiction directly. (A footnote also notes statutory cities/counties administer their own use tax on construction materials, but use by government or by religious/charitable corporations in their regular functions isn't subject to that use tax under § 29-2-109(1)(d).)

What this means for you

Contractors building for nonprofits, schools, or government

A "state only" exemption certificate isn't as narrow as it sounds for § 39-26-708(1) building-material purchases: because state-administered special-district, city, and county taxes track the state's exemptions, your exempt purchase is exempt across all of them. Keep the documentation showing the structure is owned and used by the qualifying charitable, government, or school entity — that ownership/use is what drives the exemption.

Nonprofits and exempt entities

Your state exemption flows through to state-administered local taxes on qualifying construction materials. The gap to watch is home-rule cities and counties, which set and collect their own taxes and may not honor the state exemption automatically.

Accountants and tax professionals

The mechanism is statutory conformity: special districts (§§ 32-9-119(2)(a), 32-13-107(1)(a)) and state-administered cities/counties (§ 29-2-105(1)(d)) mirror state taxability/exemption, so the § 39-26-708(1) building-materials exemption carries through. Home-rule self-collectors are outside DOR's administration (DRP 1002). Note the § 29-2-109(1)(d) government/charitable carve-out from statutory local use tax. This is the public-project counterpart to the contractor mechanics in [[gil-15-002-contractor-exemption-certificates]].

Common questions

Q: My nonprofit's certificate says "state sales/use tax only" — am I still charged special district and city tax?
A: Not on qualifying construction/building materials. State-administered special-district, city, and county taxes follow the state's exemption, so the purchase is exempt from those too. Home-rule cities are the exception.

Q: Which purchases get this treatment?
A: Construction and building materials bought by a contractor or subcontractor for building, erecting, altering, or repairing a structure owned and used by a government entity, charitable organization, or school.

Q: Does this cover home-rule city and county taxes?
A: No. The Department doesn't administer self-collected home-rule taxes. Check each home-rule city or county directly (see Form DRP 1002 for the list).

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:
- § 39-26-104, C.R.S. (sales/use tax on tangible personal property)
- § 39-26-708(1), C.R.S. (exemption for construction/building materials for government, charitable, and school structures)
- §§ 32-9-119(2)(a) and 32-13-107(1)(a), C.R.S. (special-district tax follows state taxability/exemption)
- § 29-2-105(1)(d), C.R.S. (state-administered cities/counties exempt the same transactions as the state)
- § 29-2-109(1)(d), C.R.S. (government/charitable use not subject to statutory local use tax)

Forms and rules:
- Form DRP 1002 (list of self-collected home-rule cities and counties)
- Department Rule 24-35-103.5 (GIL / PLR procedure)

Source

• Landing page: Colorado Sales & Use Tax Letter Rulings
• Original PDF: GIL-15-024.pdf

Original ruling text

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

GIL-15-024
October 20, 2015
XXXXXXXXXXXXXXX
Attn: XXXXXXXXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
Re: Tax Exempt Certificates
Dear XXXXXXXXXXX,
You submitted on behalf of XXXXXXXXXXXXX (“Company) a request for guidance to determine from
which taxes a person holding a tax exempt certificate is exempt. 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 but 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 treats this request as one for a general information letter. It is important to
remember that general information letters, such as this one, are general discussions of tax law and
are not binding on the Department. If Company would like the Department to issue a private letter
ruling on the issue raised here, Company can submit a request and fee in compliance with
Department Regulation 24-35-103.5.
Issue
From which taxes is a person holding a sales and use tax exempt certificate exempt?
Background
Company is beginning a construction project for a client who holds an “exemption from state
sales/use tax only” certificate. The client is a 501(c)(3) nonprofit corporation. Specifically Company
would like clarification on whether the certificate applies only to state sales or use tax or does this
exemption certificate also apply to special district, city or county taxes.
Discussion
In general, the purchase of tangible personal property is subject to sales and use taxes.1 However,
Colorado exempts all purchases of construction and building materials by contractors and
subcontractors for use in the building, erection, alteration, or repair of structures owned and used by
government entities, charitable organizations and schools.2
1
2

§ 39-26-104, C.R.S.
§ 39-26-708(1), C.R.S.

Pursuant to §§ 32-9-119 (2) (a) and 32-13-107 (1)(a), C.R.S., any item that is taxable or exempt
under that state sales tax is also taxable or exempt from any state-administered special district sales
tax. In addition, with certain exceptions not applicable here, state-administered cities and counties
exempt the same transactions that are exempt at the state level.3 Therefore, all sales of construction
and building materials to contractors and subcontractors for use in the building, erection, alteration, or
repair of structures owned and used by a charitable organization are exempt from state, special
district and state-administered city and county sales taxes.4
Finally, the Department does not administer the sales and use taxes of home rule cities and counties.
You can find a list of home rule cities and counties on the Department’s Website at
www.Colorado.gov/revenue/tax > Forms > Sales Tax > Form DRP 1002. We encourage you to
contact the home rule city if you have questions about how their sales and use taxes may apply to
you.
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 about the
applicability of those taxes. Visit our web site at www.colorado.gov/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
4

2

§ 29-2-105(1)(d), C.R.S.
Statutory cities and counties collect and administer their own use tax on construction and building
materials. However, “the storage, use, or consumption of tangible personal property by the United States
government, or the state of Colorado, or its institutions, or its political subdivisions in their governmental
capacities only or by religious or charitable corporations in the conduct of their regular religious or
charitable functions are not subject to use tax.” § 29-2-109(1)(d), C.R.S.
DR 4010A (06/11/14)