When a company rents scaffolding and bills extras like sheeting, planks, lighting, delivery, on-site equipment, consumables, and erection labor, which of those charges are included in the Colorado sales tax on the rental?

Plain-English summary

A contractor rents out scaffolding and, as an add-on, supplies the labor to erect, modify, and dismantle it. It bills customers for a long list of separately stated extras — sheeting/wrap/bungee cords, wood planks, lighting, "company equipment charges" (scaffold buggies, delivery by company truck, forklifts, employee vehicles), third-party equipment passed through (forklifts, vehicles, extra scaffold, harnesses, baskets, compressors, mobile offices), consumables (goggles, hard hats, tape, pins), and erection/dismantling labor. The question: which of these go into the sales tax on the rental?

The Department doesn't decide the items one by one — it's a GIL, and the facts aren't pinned down — but it gives a clear decision framework. The first fork is the biggest one:

1. How long is the rental? Under § 39-26-713(1)(a):
- Three years or less: the lessor pays sales/use tax when it buys the scaffolding and does not collect tax on the rental. In that case it doesn't matter how the extra charges are classified — no tax is collected on the rental price at all.
- Alternative: the lessor can ask the Department for permission to buy the equipment tax-free and instead collect tax on the lease payments. Only then does the classification of each charge matter — and the separability analysis kicks in.

2. The base rental is taxable property. Scaffolding is tangible personal property; renting it (when tax is collected on lease payments) is taxable. So are the related TPP items — tenting/cords, wood planking, lighting — those are property too, and renting them would likewise be taxable.

3. Delivery and on-site movement (the "equipment charges"). Charges for delivering goods and moving them around the site are presumed to be a non-taxable service. But they get pulled into the taxable rental if the customer is required to buy the service from the company (i.e., delivery is inseparable from the rental).

4. Equipment-use charges turn on control. If a charge is for the customer's use of equipment (the customer controls it), that's just a taxable rental of that equipment. If the company controls the equipment (it's using it to provide a service), the charge is not in the tax base if the customer can opt out of that charge.

5. Consumables turn on who consumes them. If the company consumes them while providing a service to the customer (e.g., its crew wears the hard hats and the cost is billed through), the charge follows the service — it's in the tax base if the service is. If the customer uses the consumable, the charge is a taxable sale of tangible personal property.

6. Separability, then true object. For deals mixing property and rental with services (like the erection/dismantling labor), the Department first asks whether the service is separable from the rental. Services required as part of the rental are inseparable, and tax is computed on both the service and the rental. If the service is not required and is separately stated, it's out of the tax. And here, the Department says the true object of the transaction is likely the rental of the scaffolding — so service and equipment charges that are inseparable from that rental are included in the tax.

7. Third-party (pass-through) equipment — wholesale-lease mechanics. The same analysis applies to third-party equipment whose cost is passed through. If both the third-party lessor and the company can collect tax on rental payments, the third-party lessor treats its rental to the company as a wholesale lease (no tax), and the company collects tax from the end user (present your sales tax license to claim the wholesale lease). But if the third-party lessor can collect tax on lease payments and the company cannot, then the third-party lessor charges the company tax, and the company does not collect tax from the end user.

Because this is a General Information Letter, it's general guidance only and not binding on the Department.

What this means for you

Scaffolding and equipment-rental companies

Your first question is the rental term. If your rentals run three years or less and you pay tax when you buy the equipment, you generally don't collect tax on the rental — and all the line-item agonizing is moot. If you've elected to collect on lease payments, then classify each charge: the scaffold and related TPP (planks, sheeting, lighting) are taxable; delivery/on-site movement is presumed non-taxable unless required with the rental; equipment-use charges hinge on who controls the gear; consumables hinge on who uses them; and erection/dismantling labor is taxed with the rental if it's required (inseparable). To keep a service charge out of the tax, make it optional and separately stated.

Contractors who rent scaffolding

If your rental term is short and the rental company paid tax up front, you may not see sales tax on the rental itself. Where tax is collected on payments, expect required add-ons (mandatory delivery, mandatory erection labor) to be taxed along with the scaffolding, because the true object is the rental.

Accountants and tax professionals

This is a thorough application of Colorado's rental/service framework: § 39-26-713(1)(a) term test (tax on acquisition for ≤3-year rentals vs. elective tax on lease payments); SR 18 delivery presumption (non-taxable unless required/inseparable); the control test for equipment-use charges; the who-consumes test for consumables; and SR 14 / A.D. Store separability followed by the true-object test (here, likely the scaffolding rental). Don't miss the SR 40 wholesale-lease pass-through rules for third-party equipment, which turn on which party has authority to collect tax on lease payments.

Common questions

Q: Are all the extra charges on a scaffolding rental taxable in Colorado?
A: It depends. If the rental term is three years or less and the company paid tax when it bought the equipment, it doesn't collect tax on the rental at all — so the extras don't matter. If the company collects tax on lease payments, then required/inseparable charges (and rentals of related property) are taxed, while optional, separately stated services and delivery are not.

Q: Is delivery taxable?
A: Delivery and on-site movement are presumed to be non-taxable services — but they're pulled into the taxable rental if the customer is required to buy them as part of the rental.

Q: How are "equipment charges" and consumables treated?
A: Equipment-use charges depend on control — if the customer controls the equipment it's a taxable rental; if the company controls it and the customer can opt out, it's not in the tax base. Consumables depend on who uses them — company-consumed items follow the service; customer-used items are a taxable sale of property.

Q: What about the erection and dismantling labor?
A: If that labor is required as part of the rental, it's inseparable and taxed together with the rental (the true object here is likely the scaffolding rental). If it's genuinely optional and separately stated, it can be a non-taxable service.

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

Citations and references

Statutes, rules, and cases:
- § 39-26-713(1)(a), C.R.S. (rentals; lessor taxed on its purchase for rentals of three years or less, or may elect to collect tax on lease payments)
- 1 CCR 201-5, Special Regulation SR 14 (Service Enterprises; separability of services from a rental)
- 1 CCR 201-5, Special Regulation SR 18 (Freight, Delivery, and Transportation Charges; delivery presumed non-taxable)
- 1 CCR 201-5, Special Regulation SR 40 (Service Enterprises; wholesale leases for pass-through equipment)
- A.D. Store Co. v. Department of Revenue, 19 P.3d 680 (Colo. 2001) (mixed property/service transactions; separability)
- See also GIL 12-018 (separately stated optional services excluded from the rental tax)

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-18-007.pdf

Original ruling text

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

GIL 18-007
May 14, 2018
XXXXXX
Attn: XXXXXX
XXXXXX
XXXXXX
Re: Scaffolding Rental
Dear XXXXXX,
You submitted a request for guidance on behalf of XXXXXX (“Company”) regarding
whether certain charges related to the rental of scaffolding are included in the
calculation of sales tax.
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, does not address specific sets of fact, 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 Rule 1 CCR 201-1, 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 binding on the Department. If Company
would like the Department to issue a private letter ruling on the specific issues 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
Are various charges related to the rental of scaffolding included in the computation of
sales tax?

Background
Company is a contractor that provides scaffolding for rental. Company also provides the
labor to erect, modify, and dismantle the scaffold as an additional service. Company has
not specified whether it provides this labor for every scaffold rental, or whether it
sometimes provides the scaffold only. Company requests guidance on items it bills to
customers because it is unclear whether these items are considered part of the service
Company provides or are an essential part of the rental. All of the charges listed below
are stated separately when billing the customer and are quoted directly from Company’s
statement of facts:
1. Scaffold sheeting/Wrap/Bungee cords - This is sheeting designed to provide
weather protection for our customers when using the scaffold. Bungee cords are
used to secure the sheeting.
2. Wood Planks/Lumber- This provides the walkway to access and use the
scaffolding.
3. Lighting/Flood lights - The lights may be used by us when building the scaffold as
well as by the customer when accessing the scaffold for their own purpose.
4. Company Equipment charges - This is a charge to the customer for Company
equipment that is used while performing the service or rental and can include:
a. Scaffold buggies used to hold and transport scaffold at the site
b. Delivery fees using Company truck
c. Forklifts to move scaffold at the site
d. Vehicles for employees to access the site
5. Third party equipment rentals - This is pass through charge to the customer and
can include:
a. Forklifts
b. Vehicles
c. Additional scaffold
d. Scaffold buggies
e. Scaffold harnesses
f. Scaffold baskets
g. Compressors
h. Mobile office rentals
6. Consumables - This is a pass through charge and can include safety goggles,
hard hats, tape, scaffold pins.
7. Labor to erect, modify and dismantle scaffold as an additional service.
Discussion
The application of sales tax to the rental of tangible personal property depends on the
length of the rental period. For rentals that are for a period of three years or less, the
lessor pays sales or use tax when it acquires the property and does not collect sales tax
when the property is rented to customers.1 It is irrelevant in this scenario whether the

1
2

§39-26-713(1)(a), C.R.S.
DR 4010A (06/11/14)

various charges are considered part of the rental price because tax is not collected on
the rental price.
Alternatively, the lessor may request permission from the Department to purchase the
equipment exempt from sales and use tax and, instead, collect sales tax on lease
payments made by lessee.2 In this scenario, the lessor must determine if charges for
services are separable from the rental of property, which is discussed in more detail
below.3
The rental of scaffolding if delivered on its own without an associated charge for
installation would likely be subject to sales tax. Related items, such as tenting, cords,
wood planking, and lighting are also tangible personal property and the rental of such
would likely be subject to tax.
A number of charges (“equipment charges”) are for transportation of rental property,
including movement of the property on site. In general, charges for delivery of goods
are presumed to be a non-taxable service.4 However, the charge for these services are
included in the calculation of tax on the rental if the customer is required to purchase the
service from the retailer (i.e., delivery is inseparable from the rental of property).5
It is not clear whether some of the equipment charges are for equipment that is used by
the Company to provide a service or are charges for the customer’s use of the
equipment. If the charge for the equipment is for the customer’s use of the equipment
(i.e., the customer is in control of the equipment), then this is simply the rental of
tangible personal property and is subject to tax. If the equipment is controlled by the
Company, then the charge is not included in the tax base if the customer has the option
not to incur the charge as part of its rental of the scaffolding.
With respect to the issue of consumables, it is not clear who is consuming the
consumables. If the Company is consuming these as part of its service (i.e., Company
employees’ use the hard hats when providing a service to customer and customers are
charged for the hats) to customers, then the charge is included in the tax base if the
service is also included in the tax base. If the consumable is used by the customer,
then the charge for the consumable is subject to tax as a sale of tangible personal
property.
However, in at least some instances the rental of the scaffolding appears to be done
part and parcel with the charges for installation services (Item 7 above is a charge for
installation and setup services). Transactions involving both tangible personal property
and services require a fact intensive analysis which we are unable to opine on here.6 In
general, the Department will first examine whether the sale of services is separable
2

Ibid
Sales Special Regulation (SR) 14 “Service Enterprises.”
4
Sales Special Regulation (SR) 18 “Freight, Delivery, and Transportation Charges.”
5
Ibid
6
See, e.g., A.D. Store Co. v. Dep’t of Revenue, 19 p.3d 680, 682 (Colo. 2001).
3

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DR 4010A (06/11/14)

from the rental of the property. In general, services that must be purchased as part of a
rental of property are considered inseparable and tax is calculated on both the charge
for service and the rental charge. Conversely, if purchase of the service is not required
as part of the rental and the price for the service is separately stated, then the charge
for the service is not included in the tax on the rental of property.7
In the case of scaffolding, it is likely that the true object of the transaction is the rental of
the scaffolding and not the purchase of a service. If so, charges for service and
equipment that are inseparable from the rental of the scaffolding are included in the
sales tax calculation for the rental of scaffolding.
The analysis above applies to equipment owned and rented by the Company and to
equipment owned by a third-party rental company whose charges are passed on to the
ultimate user. If both the third-party lessor and Company have authority to collect tax on
rental payments, the third-party lessor should treat the rental to the Company as a
wholesale lease and not collect tax on lease payments, but the Company should collect
tax on the lease payments it collects from the ultimate user.8 The Company can present
its sales tax license to the third-party lessor in order to claim the rental as a wholesale
lease. On the other hand, if the third-party lessor has authority to collect tax on lease
payments but the Company does not, then the third-party lessor must collect tax from
the Company and the Company cannot collect tax on lease payments from the ultimate
user.
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.

7
8
4

See, e.g., GIL 12-018
Sales Special Regulation (SR) 40 “Service Enterprises.”
DR 4010A (06/11/14)

Sincerely,

Office of Tax Policy
Colorado Department of Revenue

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DR 4010A (06/11/14)