Must a seller collect Colorado sales tax on erosion-control logs and silt fencing sold to contractors who present a contractor's exemption certificate?

Plain-English summary

The Colorado Department of Revenue ruled that a company selling Excelsior erosion-control logs and silt fencing must collect sales tax on those sales to construction contractors — even when the contractor presents a contractor's exemption certificate. The reason: these materials are not "construction and building materials," so the exemption the certificate is meant to invoke simply doesn't reach them.

Colorado exempts "construction and building materials" sold to contractors for public-works projects owned by governments, charities, or schools (§ 39-26-708(1)). But Colorado courts read "construction and building materials" narrowly: only items that are incorporated into real property so they lose their identity and become a permanent, integral, and inseparable part of the structure (Board of County Commissioners of Rio Blanco County v. ExxonMobil Oil Corp., 192 P.3d 582 (Colo. App. 2008), aff'd 222 P.3d 303 (Colo. 2009)). The Department's own rule on tangible-vs-real property uses the same idea — property that can be removed without substantial damage stays tangible personal property (Rule 39-26-102.15).

The erosion logs (biodegradable wood fiber in netting) and silt fencing (fabric stretched on stakes) failed that test. They're lightweight, temporary, removable without substantial damage, and they biodegrade (usually within ~24 months). Their job is to control soil and sediment during construction — essentially the same function as the temporary plastic tenting a contractor uses to contain dust. The Department classified them as consumables, a category that is never exempt under § 39-26-708 because consumables aren't incorporated into the realty. (An Arapahoe County District Court reached the same conclusion on the identical materials under Aurora's ordinance.)

Bottom line: the certificate doesn't change anything if the item isn't construction and building material. The seller must collect state and state-administered local sales tax on these sales.

What this means for you

Sellers of erosion control, sediment control, and jobsite consumables

Don't treat a contractor's exemption certificate as a blanket pass. The exemption depends on what you're selling, not just who's buying. If the product is temporary, removable without substantial damage, biodegradable, or otherwise a consumable used up during construction (silt fence, wattles/erosion logs, plastic tenting, drop cloths, blasting sand, blades), it likely isn't "construction and building material," and you should collect tax even on a public-works job. When in doubt, collect — the ruling puts the collection duty on the seller.

Construction contractors and subcontractors

A contractor's exemption certificate covers exempt purchases of construction and building materials for an exempt project; it does not convert consumables into exempt purchases. Expect to pay tax on erosion/sediment-control products and similar jobsite consumables even on government or school projects.

Accountants and tax professionals

This is the Rio Blanco/ExxonMobil "permanent, integral, inseparable" test for § 39-26-708(1), tied to the TPP-vs-real-property line in Rule 39-26-102.15, and the three-way split of construction inputs (real-property improvements / personal property / consumables). The same "construction and building materials" term is shared with the statutory city/county tax statutes (§ 29-2-109(1)) and read consistently. Compare GIL 17-001 (audio/visual equipment) and PLR 23-001 (contractor building-materials exemption).

Common questions

Q: A contractor gave me an exemption certificate — can I sell erosion logs and silt fence tax-free?
A: No. The Department ruled these aren't "construction and building materials," so the exemption doesn't apply and you must collect tax despite the certificate.

Q: Why aren't erosion logs and silt fencing "construction and building materials"?
A: Because they aren't incorporated into the realty as a permanent, integral, inseparable part of the structure. They're temporary, removable without substantial damage, and biodegrade — the Department treats them as consumables.

Q: Does it matter that the logs are sometimes left in the ground to degrade?
A: No. The Department called that a difference in degree, not kind. Their principal use is during construction, and they lack the permanence associated with real-property improvements — so they're still consumables.

Q: Does this ruling apply to my business?
A: Not automatically. A private letter ruling binds the Department only for the taxpayer and facts it was issued to and cannot be relied on by anyone else. It shows the Department's reasoning; your facts may differ.

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 cases:
- § 39-26-708(1), C.R.S. (exemption for construction and building materials used in public works for exempt entities)
- § 39-26-104, C.R.S. (sales tax on tangible personal property)
- § 29-2-109(1), C.R.S. (statutory city/county "construction and building materials"; read consistently with the state term)
- 1 CCR 201-4, Rule 39-26-102.15 (tangible personal property vs real-property improvement; permanence and severance)
- Board of County Commissioners of Rio Blanco County v. ExxonMobil Oil Corp., 192 P.3d 582 (Colo. App. 2008), aff'd per curiam 222 P.3d 303 (Colo. 2009)

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/PLR-17-006.pdf

Original ruling text

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

PLR-17-006
August 22, 2017
XXXXXX
Attn: XXXXXX
XXXXXX
XXXXXX
Re: Soil Erosion Control Material / Contractor’s Exemption Certificate
Dear XXXXXX,
You submitted on behalf of XXXXXX (“Company”) a request for a private letter ruling to the
Colorado Department of Revenue (“Department”) pursuant to Department Rule 1 CCR 201-1,
24-35-103.5. This letter is the Department’s private letter ruling. This ruling is binding on the
Department to the extent set forth in Department Rule 1 CCR 201-1, 24-35-103.5. It cannot be
relied upon by any taxpayer other than the taxpayer to whom the ruling is made.
Issue
Is Company required to collect state and state-administered sales taxes on retail sales of
Excelsior logs and silt fencing to construction contractors and subcontractors who present
Company with their contractor’s exemption certificates?
Conclusion
Company must collect state and state-administered sales taxes on the retail sales of
Excelsior logs and silt fencing to construction contractors and subcontractors who present
Company with their contractor’s exemption certificates.
Background
Company is a seller of logs (commonly referred to as “Excelsior” logs) and silt fencing
(collectively referred to here as the “Materials”). Logs are composed of biodegradable
wood fiber wrapped in polypropylene netting and are used to stabilize soil and prevent
erosion by reducing the velocity of water runoff and filtering sediment out of water runoff.
Logs are affixed to the ground with biodegradable wood stakes and are often placed
partially below grade. Logs are designed to be left in place to degrade in the soil, which
usually occurs within about twenty-four months after they are installed. On highway
construction projects, logs are generally left in place at least until construction is
complete. If the logs are left in place for an extended period of time, they are generally
not reusable. Logs are frequently left in place to completely biodegrade.

Silt fencing consists of synthetic fabric that is stretched between a series of wood stakes
and the lower portion of the fabric is typically trenched into the soil to create a pooling of
runoff water. Silt fencing is typically used on construction sites for sediment control
during construction and often remains after construction activities until final soil
stabilization. Silt fencing that is removed after having been in place for an extended
period of time generally is not reuseable.
Construction contractors use the Materials for various purposes, but primarily for soil
erosion control. Other than statements in the contractor’s exemption certificate,
Company does not know how the Materials are used by the purchaser, whether the
Materials are permanently installed, whether the Materials are removed from the jobsite,
or what happens to the Materials if they are removed from the jobsite.
Discussion
The principal issue in this ruling is whether the Materials are “construction and building
materials” as this term is used in § 39-26-708(1), C.R.S. This statute exempts,
... all sales of construction and building materials to contractors and subcontractors for
use in the building, erection, alteration, or repair of structures, highways, roads, streets,
and other public works owned and used by [government entities, charitable organizations,
and public schools] (emphasis added)
In order to qualify for the exemption, purchased materials must be both for an exempt
purpose on behalf of a public entity and be "construction and building materials". In this
case, it is clear that the Materials are purchased for project for government or charitable
entities for a public purpose. Company's customers (contractors and subcontractors) will
have contractor's exemption certificates certifying that the projects are public works. The
only remaining issue, then, is whether the Materials are "construction and building
materials", and therefore exempt, or are not "construction and building materials", and,
therefore, taxable.
Company requests the Department rule that “construction and building materials” are not
limited only to those materials that are incorporated into a real property structure so as to
lose their identity and become an integral and inseparable part of a completed structure.
This issue has been addressed in The Board of County Commissioners of the County of
Rio Blanco, Colorado v. ExxonMobil Oil Corporation, 192 P3d 582 (Colo. App. 2008),
aff’d per curiam 222 P.3d 303 (Colo. 2009) in which the Court held that “construction and
building materials”, as this term is used in the county’s use tax resolution (importantly,
which is identical to the language in subsection 708(1)), are only those items of tangible
personal property that are incorporated into real property and lose their identity as
tangible personal property. Specifically, the Court held that,
[c]onstruction and building materials are assembled into and become part of a structure
so that they lose their individual identities and take on a new composite form - that of a
building or structure that is generally associated with the realty upon which it is built.
The Court’s interpretation is reinforced by the language in § 39-26-708(1), C.R.S., which
restricts “construction and building materials” to those that are used,
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... in the "building, erection, alteration, or repair of structures, highways, roads, streets,
and other public works,"
In other words, the construction and building materials that are eligible for the exemption
are those that are incorporated as integral and inseparable parts of the buildings,
highways, and other real property structures.1
This interpretation is also consistent with the Department’s Rule that distinguishes
tangible personal property from a real property improvement.
[Tangible personal property] does not include ... tangible personal property that loses its
identity when it becomes an integral and inseparable part of the realty, and is removable
only with substantial damage to the premises. Property severed from real estate
becomes tangible personal property.2
This interpretation also appears to be the view of most other states reviewed by the
Department.3

1 “Construction and building materials” is used both in the state exemption statute (subsection 708(1)) and in

the statutes governing statutory city and county sales and use taxes (§29-2-109(1), C.R.S.). Identical
statutory terms should be read consistently.
2 Department Rule 1 CCR 201-4, 39-26-102.15
3 “Building materials” is a term of art used by many states. The department reviewed the regulations and
publications of a number of other states to understand better whether the interpretation adopted here is
consistent with other states. See, e.g., Neb. Admin. R. & Regs. 1-017 Contractors (“Building materials
mean any property, including fixtures, that will be annexed to the land or an improvement on the land.
Building materials do not include tools, supplies, or any items that will not be annexed.”); Connecticut
Informational Publication, No. 2001(13), 03/15/2001 (“Building materials means materials that are
incorporated as an improvement or repair to real property.”); WV: Code of State Rules 110-15-107
Contracting: General Rules (“.3.2.1 The term " building materials" means all tangible personal property,
including any device or appliance used by builders, contractors, or landowners in making improvements,
additions, alterations or repairs to a building or other structure or to real property in such a way that such
tangible personal property becomes a part of the building or other structure or the realty.”); S.C. Code
Regs. 117-314.2 Building Materials. (“The term " building materials " includes such tangible personal
property as lumber, timber, nails, screws, bolts, structural steel, elevators, reinforcing steel, cement, lime,
sand, gravel, slag, stone, telephone poles, fencing, wire, electric cable, brick, tile, glass, plumbing supplies,
plumbing fixtures, pipe, pipe fittings, prefabricated buildings, electrical fixtures, built-in cabinets and
furniture, sheet metal, paint, roofing materials, road building materials, sprinkler systems, air conditioning
systems, built-in-fans, heating systems, floorings, floor furnaces, crane ways, crossties, railroad rails,
railroad track accessories, tanks, builders hardware, doors, door frames, window frames, water meters, gas
meters, well pumps, and any and all other tangible personal property which becomes a part of real
property.”); Cal. Code Regs. 1521 Construction Contractors - ((4)””Materials” means and includes
construction materials and components, and other tangible personal property incorporated into, attached
to, or affixed to, real property by contractors in the performance of a construction contract and which, when
combined with other tangible personal property, loses its identity to become an integral and inseparable
part of the real property.”); Minn. R. 8130.1200; Neb. Admin. R. & Regs. 1-017 Contractors (“Building
materials mean any property, including fixtures, that will be annexed to the land or an improvement on the
land. Building materials do not include tools, supplies, or any items that will not be annexed.”); N.M. Admin.
Code 3.2.1.11(I); but, see IA: Iowa Admin. Code 701--19.2 (422, 423) Iowa Admin. Code subsection
422.42(15) “[S]ales of building materials, supplies and equipment to owners, contractors, subcontractors or
builders for the erection of buildings or the alteration, repair or improvement of real property are retail sales
in whatever quantity sold. This means that a contractor, subcontractor, or builder cannot claim an
exemption for resale when purchasing building materials or supplies even if the contractor, subcontractor,
or builder later separately itemizes material and labor charges for construction contracts. Building materials
and supplies would generally consist of items which are incorporated into real property, lose their identity
as tangible personal property and cannot be removed without altering the realty, or which are consumed by
the contractor during the performance of the construction contract.”
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For these reasons, we conclude that “construction and building materials” does not
include all materials used during construction but rather only those materials that are
incorporated into realty so as to lose their identity as tangible personal property and
become an integral, permanent,4 and inseparable part of the realty.
Company anticipates this conclusion and argues that even if permanent, integral and
inseparable incorporation into real property is required, the Materials do, in fact, meet this
requirement. The issue, then, is whether the Materials are incorporated into real property
in such a manner as to lose their individual identity as tangible personal property and
become an integral and permanent, inseparable part of a structure, highway, road, street
or other public work. Company points to certain characteristics of the Material that
suggest the Materials qualify as construction and building materials. For example, the
Materials are primarily used in construction activities. The Materials are also affixed to
the ground (wood stakes), are partially buried below grade,5 and are often left in place
after construction6 to stabilize the soil on the construction site during revegetation.
Moreover, the Materials are not reusable once in situs for a period of time.
However, these characteristics are of limited quality and several other characteristics of
the Materials indicate that they are not incorporated into real property as a permanent,
integral, and inseparable part of the realty as this phrase is commonly understood and
applied. First, we considered whether the Materials are, themselves, real property
structures. We conclude they are not. The Materials consist of either lightweight fabric or
wood fiber that biodegrades or photodegrades within a relatively short period of time.
The Materials are primarily used during construction to stabilize and maintain the soil until
the real property structure is built and the soil is revegetated. Once construction is
completed, the construction site is typically landscaped to eliminate soil erosion. The
Materials are sometimes removed after this landscaping is completed. If not removed,
the Materials generally degrade within twenty-four months of use. This suggests their
usefulness after construction is limited to the construction period (including the
revegetation) and that they do not constitute, in any real sense, a permanent, integral,
and inseparable part of realty.
Second, whether property constitutes a real property improvement often turns on the
manner and degree to which the material is attached to realty.7 Materials that can be
removed from the realty without substantial damage to the realty are generally not
classified as a fixture to realty.8 The Department concludes that Excelsior logs and silt
fencing, by their nature, are removable without substantial damage to the realty and are
4 See Exxon, in which the Court describes these materials as “permanent” fixtures to realty.

Taxpayer
correctly notes that the Department’s regulation does not expressly use the term “permanent”. However,
the Department cannot by regulation either reduce or expand the scope of a statute. The Court has
interpreted the scope of this statutory phrase in terms of “permanence” and, therefore, it is appropriate to
apply that term here.
5 Taxpayer represents that approximately 6” to 12” of the fencing is placed below grade and that the excelsior
logs are typically half buried.
6 We discuss infra the district court’s conclusion in Arapahoe County District Court Case Number 2014 CV
33349 that excelsior logs and silt fencing are sometimes removed after construction, Company represents
that the Materials its customers use are typically left in the ground when used for highway construction
projects and must be left in the ground until there is at least 70% revegetation of the disturbed soil.
7 ExxonMobil, supra.
8 Department Regulation 1 CCR 201-4, 39-26-102.15
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temporary, and, therefore, that Excelsior logs and silt fencing cannot meet the
requirements to be construction and building materials.
Finally, there is a third class9 of materials used in construction that is relevant to this
issue. Materials consumed by the contractor, such as abrasive materials (sandpaper,
blasting sand, grinding wheels, saw blades, etc.), electricity and diesel, drop cloths, and
other similar materials (often referred to as “consumables”) are not exempt under
subsection 708(1) because they are not incorporated into the real property. For example,
temporary plastic tenting is often used by a contractor to encase a building during
construction to contain dust and other debris and prevent their dispersal to other areas of
the construction site or neighboring land. This is also the purpose of the Materials: to
contain soil on the worksite and prevent soil dispersion. The plastic tenting is affixed to
the building but is not permanently incorporated into the real property. Plastic tenting is
a material used and consumed, in whole or in part, by the contractor during construction
and is not exempt under § 39-26-708, C.R.S. We acknowledge that this analogy is not
perfect because the plastic tenting is removed while the Materials may be left in place.
However, we view this as a difference in measure and not a difference in kind: both serve
the same purpose.
The Materials are more properly characterized as consumables. Logs and fences are
used during construction to contain disturbed soil and debris. They either biodegrade or
are removed after the construction and landscaping is complete. The Department
acknowledges that the Materials are sometimes left in the ground after construction while
plastic tenting is typically not left on the construction site. However, and as we discussed
above, the principal use of the Materials is during construction. Even if left in the ground,
the Materials do not have the permanency that is commonly associated with real property
improvements.
Finally, in an Arapahoe District Court case (2014 CV 33349), the Court addressed the
question of whether certain materials, such as Excelsior logs and silt fencing, the same
materials that are at issue in this ruling, qualified as “construction and building materials”,
as that phrase is used in the City of Aurora sales and use tax ordinance, and concluded
that they did not because they were not assembled or incorporated into real property so
as to lose their identity and become an integral part and inseparable part of the real
property structure. The Department agrees with the reasoning of the Court.
For these reasons, we conclude that the Materials are not construction and building
materials as these terms are used in § 39-25-708(1), C.R.S. Therefore, Company must
collect state and state-administered local sales taxes from retail purchasers, even if a
contractor presents a contractor’s exemption certificate.
Miscellaneous
This ruling applies only to sales and use taxes administered by the Department. Please note
that the Department administers state and state-collected city and county sales taxes and
special district sales and use taxes, but does not administer sales and use taxes for self9 Materials involved in construction can be classified into real property improvements, personal property, and

consumables.

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collected home rule cities and 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.
This ruling is premised on the assumption that Company has completely and accurately
disclosed all material facts. The Department reserves the right, among others, to
independently evaluate Company’s representations. This ruling is null and void if any such
representation is incorrect and has a material bearing on the conclusions reached in this ruling.
This ruling is subject to modification or revocation in accordance to Department Regulation 2435-103.5.
Enclosed is a redacted version of this ruling. Pursuant to statute and regulation, this redacted
version of the ruling 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 version of the ruling.
Sincerely,

Office of Tax Policy
Colorado Department of Revenue

This ruling cannot be relied upon by any other taxpayer other than the taxpayer to
whom the ruling is made.

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