Must a seller collect tax on audio/visual equipment sold to a contractor who presents a contractor's exemption certificate?

Plain-English summary

A company that sells and installs audio/visual equipment asked what to do when a construction contractor hands it a contractor's exemption certificate (Form DR 0163). The Department's practical answer: when the contractor is working for an exempt entity (a government body, charity, or school), the sale is exempt, and the retailer can safely accept either the contractor's exemption certificate or the contractor's sales tax license.

Here's the nuance. A retailer must collect sales tax unless the sale is exempt, and it must exercise reasonable care to determine that a sale qualifies (§ 39-26-105). A buyer's valid contractor's exemption certificate or sales tax license normally discharges that duty. But A/V equipment is usually not "construction and building material" — it doesn't fall under the special contractor rules unless it's built into the structure so it becomes an integral part that can't be removed without substantial damage. For materials that aren't construction materials, the technically correct document is the contractor's sales tax license (the contractor is buying for resale/as a retailer), not the contractor's exemption certificate (which is about construction materials for exempt projects).

The Department's bottom line is pragmatic: because a contractor engaged by an exempt entity can buy the equipment tax-free regardless of whether it's construction material — and whether the contractor is treated as the consumer (exempt-entity purchase) or as a reseller — the end result is an exempt sale either way. So the A/V retailer may accept either document. This is a General Information Letter, so it's guidance, not a binding determination.

What this means for you

Audio/visual, security, and equipment sellers/installers

When you sell to a contractor doing work for a government, school, or charity, you can treat the sale as exempt and accept either the contractor's exemption certificate or sales tax license. Keep the documentation on file — your protection comes from exercising reasonable care and holding a valid certificate or license. Remember that most A/V gear isn't "construction and building material" unless it's permanently built into the structure, so don't assume the special lump-sum/time-and-material contractor rules apply to it.

Contractors buying equipment for exempt projects

For non-construction-material equipment, the more precise document to present is your sales tax license, though sellers may accept your exemption certificate too. Either way, purchases for an exempt entity's project can be made tax-free.

Accountants and tax professionals

This turns on the retailer's reasonable-care/documentation duty (§ 39-26-105(1),(3)) and the exempt-entity exemption (§ 39-26-704), not on classifying the A/V gear as construction material (see GIL 15-011 and the integral-to-the-structure test). Contrast PLR 17-006, where the item (erosion materials/consumables) wasn't exempt at all, so a certificate couldn't save it — here the exemption flows from the exempt entity, so either document works.

Common questions

Q: A contractor gave me an exemption certificate for A/V equipment — is the sale tax-free?
A: If the contractor is working for an exempt entity (government, charity, school), yes. The Department says you may accept either the exemption certificate or the contractor's sales tax license, because the sale is exempt either way.

Q: Is audio/visual equipment "construction and building material"?
A: Usually not — only if it's built into the structure so it becomes an integral part that can't be removed without substantial damage. Otherwise it's ordinary tangible personal property, and the special contractor rules don't apply.

Q: Which document is technically correct?
A: For non-construction-material equipment, the contractor's sales tax license is the more precise document. But practically, the retailer can accept either, since the sale to a contractor for an exempt entity is exempt regardless.

Q: Does this letter decide my case?
A: No. A General Information Letter is general guidance and is not binding on the Department; it makes no specific determination. For a binding answer, request a private letter ruling.

Q: Does this cover city sales tax?
A: No. The Department administers state and state-collected local taxes only; self-collected home-rule cities set their own rules — check with each.

Citations and references

Statutes, rules, and references:
- § 39-26-704, C.R.S. (exemption for sales to government and other exempt entities)
- § 39-26-105(1), C.R.S. (retailer's duty to collect tax unless the sale is exempt)
- § 39-26-105(3), C.R.S. (retailer's duty to exercise reasonable care in documenting exemptions)
- Form DR 0163 (contractor's exemption certificate); GIL 15-011 (special tax rules for contractors buying A/V equipment)

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-17-001.pdf

Original ruling text

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

GIL-17-001

January 24, 2017
XXXXXXXXXXXXXXX
Attn: XXXXXXXXXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
Re: Taxability of Audio / Visual Equipment
Dear XXXXXXXXXXX,
You submitted on behalf of XXXXXXXXXXXXXXX (“Company”) a request for guidance on
whether Company must collect sales tax if a construction contractor presents Company
with a contractor’s exemption certificate.
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 Rule 1 CCR 201-1,
24-35-103.5.
The Department treats this request as 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
pay the fee in compliance with Department Rule 1 CCR 201-1, 24-35-103.5.
Issue
Is Company required to collect state sales and use tax on the sale of audio/visual
equipment to a construction contractor who presents Company with a contractor’s
exemption certificate?
Background
Company sells and installs audio/visual equipment to a wide variety of customers,
including contractors engaged in construction for exempt entities, such as governmental
entities, charitable entities, and schools. Contractors typically present a contractor’s
exemption certificate to the Company.

Structure of Analysis
To determine whether Company has an obligation to collect Colorado sales and use tax
for sales of audio/visual equipment, the Department will examine the following question:
1. Has Company, as a retailer, exercised reasonable care in determining whether the
sale to the contractor is exempt pursuant to §39-26-704, C.R.S.?
Discussion
Colorado requires a retailer to collect sales or retailer’s use tax on sales, unless the
transactions is exempt.1 A retailer has an obligation to exercise reasonable care to
determine whether a transaction is exempt.2 In general, a retailer discharges this
obligation if the buyer presents the retailer with a valid contractor’s exemption certificate
(Form 0163) or sales tax license.
In GIL-15-011, the Department discussed the special tax rules applicable to contractors
and how those rules apply to a contractor who purchases audio/visual equipment. In
general, audio / visual equipment does not qualify as “construction and building material”
(and, therefore, does not fall under the special rules for contractors and lump sum / timeand-material contracts) unless the equipment is built into the structure so as to become
an integral part of the structure and cannot be removed without substantial damage to the
existing structure. However, if the contractor is engaged by an exempt entity, the
contractor can purchase the equipment exempt of tax, regardless of whether the
equipment is construction material. To claim that exemption, the contractor must present
a valid exemption certificate.
Although it is more technically correct for the contractor to present a sales tax license if the
audio / visual equipment is not construction or building material, the practical answer for
an audio/visual equipment retailer selling to contractor engaged by an exempt entity is that
the retailer can accept either the contractor’s exemption certificate or the contractor’s sales
tax license because, whether the contractor is treated as the consumer or a reseller, the
sale by the retailer is exempt.
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 homerule 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
1
2

2

§ 39-26-105(1), C.R.S.
§ 39-26-105(3), C.R.S. See, also, Department FYI Sales (1) “How to Document Sales to
Retailers, Tax-Exempt Organizations and Direct Pay Permit Holders”
DR 4010A (06/11/14)

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

DR 4010A (06/11/14)