If a contractor shows me a valid Colorado sales tax license, is that enough to sell them building materials tax-free for resale — and does it matter whether the goods go to their warehouse or a job site?
Plain-English summary
A large distributor that sells building and construction materials to contractors asked the Colorado Department of Revenue how to handle the sales tax exemption when a customer is a licensed retailer-contractor — a contractor who is also registered as a retailer because it resells some of what it buys. The Department's answer comes in three parts.
Building and construction materials. When the distributor verifies that the retailer-contractor's Colorado sales tax license is valid, that verification is enough to treat the sale as an exempt purchase for resale. The Department said this does not depend on where the goods are delivered — the exemption holds whether the materials go to the contractor's warehouse, its business location, or directly to a job site.
Non-building materials (the ruling lists things like appliances, water heaters, furnaces, heat pumps, lighting fixtures, cabinets, and refrigerated cases). Here a valid license alone is not the whole story. The seller must also evaluate whether the item is reasonably for resale in the course of the contractor's ordinary business. If it is, the sale is exempt. If the goods are really tools or other contractor supplies the contractor will use itself, the seller must collect sales tax.
The thread running through all of it: under Colorado law the burden is on the seller to prove a sale was exempt. A valid resale license plus reasonable due diligence about what's actually being resold is how the seller carries that burden. When there's genuine doubt that an item is for resale, the seller must collect the tax.
What this means for you
Distributors and wholesalers selling to contractors
For building and construction materials, verifying a customer's Colorado sales tax license (using the Department's online verification system, and keeping a record of it) is sufficient documentation to make the sale exempt for resale — regardless of delivery location. For non-building materials, don't stop at the license: ask whether this contractor would reasonably resell this item. Appliances and fixtures a mechanical contractor resells can qualify; the drills, gauges, and shop supplies it uses on the job do not. Because the burden of proving an exemption falls on you as the seller, when in doubt, collect the tax.
Retailer-contractors
Holding a valid sales tax license lets you buy materials you resell without paying sales tax up front, but it isn't a blanket pass. Expect a supplier to charge tax on tools and supplies you consume yourself, even on the same invoice as resale items. If you believe tax was charged in error, you can file a claim for refund with the Department.
Accountants and tax professionals
The decision turns on the seller's due-diligence duty in 1 CCR 201-4, Rule 39-26-105-3 and the statutory rule (§ 39-26-105(3)(a), C.R.S.) that the burden of proving an exemption rests on the retailer. The notable, practical points are that delivery location is irrelevant to the building-materials exemption, and that a single customer can present both exempt resale purchases and taxable own-use purchases that the seller must separate.
Common questions
Q: Is a customer's sales tax license enough to sell building materials tax-free?
A: For building and construction materials, yes — when the seller verifies the retailer-contractor's Colorado sales tax license is valid, that is sufficient to document an exempt sale for resale.
Q: Does it matter whether the materials ship to a warehouse or a job site?
A: No. The Department said the location of delivery does not affect whether a valid sales tax license is sufficient to document the exempt sale of building materials to a retailer-contractor.
Q: What about appliances, water heaters, and fixtures?
A: Those are "non-building materials." A valid license plus the seller's reasonable judgment that the item is for resale can make them exempt. But tools and other supplies the contractor uses itself are taxable, and the seller must collect the tax.
Q: Who is responsible if the exemption is wrong?
A: The seller. Colorado law puts the burden on the retailer to prove a sale was exempt, so if there's doubt the item is for resale, the seller must collect the tax. A buyer charged tax in error can file a refund claim with the Department.
Q: Can I rely on this ruling for my own business?
A: Not automatically. A private letter ruling is binding on 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, but your facts may differ.
Q: Does this cover home-rule city sales tax?
A: No. The Department administers state and state-administered local sales and use taxes only. Self-collected home-rule cities set their own rules — check with each city.
Citations and references
Statutes and rules:
- § 39-26-104(1)(a), C.R.S. (sales tax on retail sales of tangible personal property)
- § 39-26-102(15)(a)(I), C.R.S. (definition of tangible personal property)
- § 39-26-105(3)(a), C.R.S. (burden is on the retailer to prove a sale is exempt)
- § 39-26-703(1), C.R.S. (retailer must collect tax where the right to an exemption is in doubt)
- 1 CCR 201-4, Rule 39-26-105-3 (exemption documentation, seller due diligence, and the resale test)
- 1 CCR 201-1, Rule 24-35-103.5 (private letter ruling procedure)
Source
- Landing page: Colorado Sales & Use Tax Letter Rulings
- Original PDF: PLR-24-005.pdf
Original ruling text
Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]
PLR 24-005
June 20, 2024
XXXXXXXXXXXXX
XXXXXXXXXXXXX
XXXXXXXXXXXXX
Via Electronic Mail: XXXXXXXXXXXXX
Re: Sales Tax Exemption on Building and Nonbuilding Materials
Dear XXXXXXXXXXX:
You submitted a request for a private letter ruling on behalf of XXXXXXXXXXXXX to the Colorado
Department of Revenue (“Department”) pursuant to 1 CCR 201-1, Rule 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 1 CCR
201-1, Rule 24-35-103.5. It cannot be relied upon by any taxpayer other than the taxpayers to whom the
ruling is made.
Issues
1. Whether Company’s verification of a retailer-contractor’s valid Colorado sales tax license is sufficient to
prove that the Company is exempt from collecting sales tax on the retailer-contractor’s purchase of
building and construction materials that are delivered to the retailer-contractor’s warehouse or business
location.
2. Whether Company’s verification of a retailer-contractor’s valid Colorado sales tax license is sufficient to
prove that the Company is exempt from collecting sales tax on the retailer-contractor’s purchase of
building and construction materials that are delivered to a job site.
3. Whether Company’s verification of a retailer-contractor’s valid Colorado sales tax license paired with
Company’s evaluation of the reasonableness of a mechanical retailer-contractor’s purchase of nonbuilding materials is sufficient to prove that Company is exempt from collecting sales tax on the purchase
of non-building materials by mechanical retailer-contractors when such purchases are likely to be resold,
but Company should collect sales tax on the purchase of tools and other contractor supplies when such
purchases are likely used by the mechanical retailer-contractor.
Conclusions
1. Yes. When the Company verifies that a retailer-contractor’s Colorado sales tax license is valid, such
verification is sufficient to exempt the retailer-contractor’s purchase of building and construction materials
that are delivered to the retailer-contractor’s warehouse or business location.
2. Yes. When the Company verifies that a retailer-contractor’s Colorado sales tax license is valid, such
verification is sufficient to exempt the retailer-contractor’s purchase of building and construction materials
that are delivered to a job site.
PLR 24-005
June 20, 2024
Page 2
- Yes. When the Company verifies the exemption documentation from the customer and evaluates the
reasonableness of a mechanical retailer-contractor’s purchase of non-building materials, such verification
and evaluation is sufficient to exempt the mechanical retailer-contractor’s purchases that are likely to be
resold. Company must collect sales tax on the purchase of tools and other contractor supplies when such
purchases are likely to be used by the mechanical retailer-contractor.
Background1
Company provides expertise, solutions, and products—from infrastructure, plumbing, and appliances to
HVAC, fire, fabrication, and more—to residential and nonresidential contractors. The products are
delivered through a common network of distribution centers, branches, specialist sales associates,
counter service, and showroom consultants. Company operates XXXXXXXXXX in Colorado to serve
customers that typically align to nine different customer groups. Each customer group includes
competitors that range from large national companies to small, privately owned distributors, including but
not limited to plumbing, HVAC, mechanical, and electrical contractors, as well as general construction
contractors, property developers, and homebuilders. Company delivers purchases to customers at the
Company branches, by Company delivery, or by third-party carrier as well as drop shipments direct to
customers from Company’s independent third-party national suppliers for non-stock items.
A high percentage of Company’s customers are contractors. These customers are typically treated as
consumers from which Company collects state and state-administered local sales tax absent presentation
of specific exemption documentation or the presentation of local building permits showing payment of
local taxes, or both. Recently, an increasing number of Company’s customers are becoming licensed with
the Department as retailer-contractors and are presenting a sales tax license to Company for all
purchases of building and construction materials, as well as for non-building materials.
A significant number of Company’s sales are purchases by mechanical retailer-contractors. These
contractors are typically involved in installing various systems that use mechanical elements in residential
and commercial buildings. However, the mechanical retailer-contractors also frequently resell to others or
install many non-building materials, including the following:
•
•
•
•
•
•
•
•
•
•
•
Appliances;
Residential or commercial water heaters;
Furnaces;
Heat pumps;
Air handlers;
Air condenser units;
Mirrors and other accessories, such as grab bars or safety bars;
Ready-made cabinets and vanities;
Lighting fixtures;
Refrigerated cases for grocery stores and other retail locations; and
Tools or other contractor supplies.
When a customer claims a purchase is exempt, Company reviews any presented sales tax exemption
documentation and verifies the Colorado license or certificate using the Department’s online verification
system or confirms that such verification has been properly documented on a prior recurring business
transaction. For example, Company generally records a customer’s tax exemption number in its point-ofsale system whenever a new customer account is created and uploads any exemption documentation
presented by the customer to Company’s automated exemption certificate management system for ready
1
Paragraph (4)(b)(ii) of 1 CCR 201-1, Rule 24-35-103.5 requires the request for a private letter ruling to include a statement of facts.
This section generally recites the statement of facts provided in the initial request or in any supplement or amendment thereto,
which is not an indication that the Department found such facts relevant to its analysis. Some relevant facts may be redacted or
omitted to ensure confidentiality as required by section 24-35-103.5(5), C.R.S. The terms used in this section to describe the factual
background are generally those of the requester.
PLR 24-005
June 20, 2024
Page 3
future access. As part of this acceptance and verification process, Company also evaluates whether the
non-building materials are reasonably resold by the mechanical retailer-contractor.
Discussion
Colorado imposes a sales tax on the retail sale of tangible personal property, unless a specific sales tax
exemption applies.2 The term “tangible personal property” means “corporeal personal property,” and
generally embraces all goods, wares, merchandise, products and commodities, and all tangible or
corporeal things and substances that are dealt in and capable of being possessed and exchanged.3 For
any sale of tangible personal property for which an exemption from sales tax is claimed, the burden is on
the retailer to prove that they are exempt from collecting the tax on the purchase. 4 To claim an exemption
from sales tax, a purchaser must present exemption documentation to a seller, and the seller must
exercise due diligence in verifying such documentation and claim.5 It is the seller’s responsibility to
determine the purchaser’s eligibility for the claimed exemption.6 If the seller has reason to doubt the
purchaser’s eligibility for the claimed exemption, the seller must “obtain and retain sufficient information
and documentation from the purchaser to resolve the doubt or must collect the applicable tax.” 7
Company sells building materials to customers. These building materials may be delivered, by Company
or by third-party carriers, to the customer’s business location, warehouse, or job site. When a retailercontractor presents a sales tax license to Company, Company should verify such documentation and
determine whether the goods sold are reasonably for resale in the course of the purchaser’s ordinary
business.8 When Company verifies the exemption documentation, Company may rely on the exemption
documentation and not charge sales tax on the building materials sold to a retailer-contractor.9 The
location of the delivery does not impact whether a valid sale tax license is sufficient to document an
exempt sale of building materials to a retailer-contractor.
Company regularly sells non-building materials to mechanical retailer-contractors. As noted above, it is
the responsibility of the seller to evaluate the purchase and determine that the goods being sold “are
reasonably for resale in the course of purchaser’s ordinary business.” 10 Company, as seller, has the
burden of demonstrating that the purchaser was eligible for the exemption. 11 If there is any question about
the purchase being reasonably for resale in the ordinary course of business, Company must collect the
tax.12 While some non-building materials may be reasonably for resale in the course of a mechanical
retailer-contractor’s business, other non-building materials, such as tools and other contractor supplies,
are likely purchased for use by the mechanical retailer-contractor when performing projects. Company
must collect sales tax on the latter. A purchaser who believes sales tax was wrongly collected on their
purchase may file a claim for refund from the Department.13
Miscellaneous
This ruling is premised on the assumption that Company has completely and accurately disclosed all
material facts, that all representations are true and complete, and that Company has otherwise complied
with the requirements of section 24-35-103.5, C.R.S., and the rules promulgated pursuant thereto. The
Department reserves the right, among others, to independently evaluate Company’s facts,
2
Section 39-26-104(1)(a), C.R.S.
Section 39-26-102(15)(a)(I), C.R.S.
4
Section 39-26-105(3)(a), C.R.S.
5
Paragraph (1) of 1 CCR 201-4, Rule 39-26-105–3.
6
Id.
7
Id.
8
Id. at (2)(a) and (2)(c).
9
Id. at (1).
10
Paragraph (2)(c)(i)(A) of 1 CCR 201-4, Rule 39-26-105–3
11
Section 39-26-105(3)(a), C.R.S.
12
Section 39-26-703(1), C.R.S.; Paragraph (2)(c)(ii) of 1 CCR 201-4, Rule 39-26-105–3.
13
Paragraph (2)(c)(ii) of 1 CCR 201-4, Rule 39-26-105–3.
3
PLR 24-005
June 20, 2024
Page 4
representations, and assumptions. The ruling is null and void if any such fact, representation, or
assumption is incorrect and has a material bearing on the conclusions reached in this ruling. This ruling is
binding on the Department, and is subject to modification or revocation, in accordance with 1 CCR 201-1,
Rule 24-35-103.5.
The Department administers state and state-administered local sales and use taxes. This letter does not
address sales and use taxes administered by self-collected home-rule cities. You may wish to consult
with those local governments that administer their own sales or use taxes about the applicability of those
taxes. Visit our website at Tax.Colorado.gov for more information about state and local sales taxes.
Thank you for your request.
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.