Are factory-built (prefabricated/modular) home modules exempt from Colorado sales tax, and who owes tax — the manufacturer's suppliers, the builder, or the home buyer?
Plain-English summary
A Colorado company that manufactures prefabricated (factory-built) housing modules — together with a related construction affiliate that installs them on foundations and sells the finished homes — asked the Department of Revenue how Colorado sales and use tax applies across the whole chain. The Department worked through seven questions. The short version: the modules are largely tax-exempt, and the finished home is never taxed as a sale.
Here's the chain, step by step:
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The manufacturer's raw materials are exempt. Lumber, drywall, windows, wiring, plumbing, HVAC components and the like that get built into the modules are bought tax-free as a wholesale/component-part manufacturing exemption — the materials become part of a product made for sale. This exemption isn't optional, so it applies to state-administered local taxes too.
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The sale of the finished modules is exempt — partially, then fully. The Department found the products qualify both as "manufactured homes" (for the older partial exemption) and as "modular homes" (for the newer full exemption):
- Before January 1, 2025: a partial exemption — 48% of the purchase price is exempt from state sales tax.
- On or after January 1, 2025: a full exemption from state sales tax, thanks to House Bill 24-1036, which expanded the exemption to "modular homes."
- Local taxes vary. The full (post-2025) exemption is an optional exemption for state-administered cities, towns, and counties, so it applies only where they've adopted it. The 48% partial exemption is not optional, so it applies across state-administered locals. -
Sourcing follows where the buyer takes possession. The sale is sourced to where the buyer receives (takes possession of) the modules. If the builder picks them up at the factory, the sale is sourced to the manufacturing facility. If a third-party shipping company hauls them, the carrier's possession doesn't count as "receipt," so the sale is sourced to where the builder actually takes possession — and if that can't be determined, the rules fall back through the buyer's address to, ultimately, the factory (the ship-from location).
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The finished home's conveyance isn't taxed. Once the modules are installed on a foundation and become an integral and inseparable part of the realty, the completed residence is real property, not tangible personal property. Selling a house is not a taxable sale, so when the affiliate conveys the finished home to the buyer (or to a 501(c)(3) entity that provides housing), no state or state-administered local sales tax applies.
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One question the Department wouldn't answer. It declined to rule on whether the affiliate owes local use tax when modules are used in a different jurisdiction than where the sale was sourced — because local use taxes are administered by the cities, towns, and counties themselves, not the Department, so it lacks authority to rule on them.
A note on scope: the Department agreed to apply this ruling to both the manufacturer and its related construction affiliate, but not to the unrelated "third-party contractors" mentioned in the request.
What this means for you
Prefabricated and modular home manufacturers
If your factory-built units meet Colorado's "manufactured home" / "modular home" definitions, two big breaks stack up: you can buy your input materials tax-free as a manufacturer, and your sales of the modules are exempt from state sales tax (fully, for sales on or after January 1, 2025). Keep documentation that your products fit the statutory definitions — that's what the whole exemption rests on. Watch the local layer: the full post-2025 exemption only applies in state-administered cities, towns, and counties that have adopted the option, so check each jurisdiction.
Builders and construction affiliates
Be precise about sourcing: where your crew or you take possession of the modules drives which jurisdiction's tax (and exemptions) apply — and using a third-party carrier shifts "receipt" to where you actually take the modules, not the factory. When you convey the finished home, you don't charge sales tax, because it's now real property. But note the Department wouldn't decide the local use tax question for cross-jurisdiction use — you may need to take that up with the specific local government.
Accountants and tax professionals
The exemptions: materials under the wholesale/component-part exemption (§ 39-26-102(20)(a), C.R.S., with the use-tax counterpart in § 39-26-713(2)(b), C.R.S.); the module sale under § 39-26-721(1), C.R.S. (48%, non-optional locally) pre-2025 and § 39-26-721(3)(b), C.R.S. (full, as amended by HB 24-1036, optional for local cities/towns/counties) from 2025 on. Sourcing runs through § 39-26-104(3)(a), C.R.S., with "receipt" excluding a shipping company's possession. The finished-home conveyance is untaxed because installed modules become realty (not TPP). Use the Department's DR 1002 publication and address-level GIS tool to confirm which local jurisdictions adopt the optional exemption.
Common questions
Q: Does a manufacturer of prefab/modular homes pay sales tax on the materials it builds into the units?
A: No. The materials and components incorporated into the modules qualify for Colorado's wholesale/component-part manufacturing exemption, which is not optional and also applies to state-administered local taxes.
Q: Are sales of the housing modules themselves taxed?
A: They're largely exempt. Before January 1, 2025, 48% of the purchase price is exempt from state sales tax (a partial exemption). On or after January 1, 2025, the modules are fully exempt from state sales tax under House Bill 24-1036. Local-tax treatment varies by jurisdiction.
Q: Why do local taxes "vary"?
A: The full post-2025 exemption is an optional exemption that state-administered cities, towns, and counties may choose to adopt, so it applies only where adopted. The 48% partial exemption is not optional and applies across state-administered local jurisdictions.
Q: Where is the sale taxed — the factory or the building site?
A: It's sourced to where the buyer takes possession of the modules. Pick-up at the factory sources the sale to the manufacturing facility; if a third-party carrier transports them, the sale is sourced to where the buyer actually takes possession (with fallbacks to the buyer's address and, last, the ship-from location).
Q: Does the home buyer pay sales tax when they buy the finished home?
A: No. Once installed, the modules become a permanent, inseparable part of the real property, so conveying the completed home is a transfer of real property, not a taxable sale of tangible personal property.
Q: Does this ruling apply to my company?
A: Not automatically. It binds the Department only as to the specific taxpayer and its related construction affiliate, on their facts, and it explicitly cannot be relied on by any other taxpayer — including the third-party contractors named in the request. It does not cover self-collected home-rule city taxes.
Citations and references
Statutes, rules, and authority:
- § 42-1-102(48.8), C.R.S. (definition of "manufactured home," used in § 39-26-721(1)–(2))
- § 39-1-102(8.3), C.R.S. (definition of "modular home," used in § 39-26-721(3))
- § 39-26-721(1), C.R.S. (48% partial state sales-tax exemption for manufactured homes; not a local-option exemption)
- § 39-26-721(3)(b), C.R.S. (full state sales-tax exemption for modular homes, as amended by House Bill 24-1036; a local-option exemption for cities/towns/counties)
- § 39-26-102(20)(a), C.R.S. (exempt wholesale sale — materials that become a component part of a manufactured product)
- § 39-26-713(2)(b), C.R.S. (corresponding use-tax exemption)
- § 39-26-104, C.R.S. (imposition of sales tax) and § 39-26-104(3)(a), C.R.S. (sourcing rules); "receipt" excludes possession by a shipping company (§ 39-26-104(3)(d)(II), C.R.S.)
- § 29-2-105(1)(d), C.R.S. (local-option exemptions, including § 29-2-105(1)(d)(I)(P) for the full prefab exemption)
- § 29-2-109, C.R.S. and § 29-2-106(3)(a), C.R.S. (local use taxes administered by the local government — basis for the Department declining to rule on issue 6)
- 1 CCR 201-4, Rule 39-26-102(15)(2)(a) (real property is not tangible personal property)
- 1 CCR 201-5, Special Rule 10 (construction contractors as consumers of building materials)
- 1 CCR 201-1, Rule 24-35-103.5 (private letter ruling procedure)
- House Bill 24-1036 (2024 Colo. Sess. Laws 2523, 2536)
- A.D. Store Co., Inc. v. Dep't of Revenue, 19 P.3d 680 (Colo. 2001); C.F. & I. Steel Corp. v. Charnes, 637 P.2d 324 (Colo. 1981)
- Department publications: Sales Tax Topics: Prefabricated Housing; DR 1002 (local jurisdiction exemptions)
Source
- Landing page: Colorado Sales & Use Tax Letter Rulings
- Original PDF: PLR-25-001.pdf
Original ruling text
Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]
PLR 25-001
May 8, 2025
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Via Electronic Mail: XXXXXXXXXX
Re: Sales and Use Taxes on Prefabricated Housing Modules
Dear XXXXXXXXXX:
You submitted a request for a private letter ruling on behalf of XXXXXXXXXX (“Taxpayer”), and
XXXXXXXXXX (“Construction Affiliate”), a related party,1 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
taxpayer to whom the ruling is made.
Issues
1. Whether Taxpayer’s products are “manufactured homes” as that phrase is defined in section
42-1-102(48.8), and used in section 39-26-721(1) and (2), C.R.S.
2. Whether Taxpayer’s products are “modular homes” as that phrase is defined in section 39-1102(8.3), and used in section 39-26-721(3), C.R.S.
3. Whether Taxpayer’s purchases of materials and components from suppliers for
incorporation into its prefabricated housing modules are exempt from state and stateadministered local sales and use tax.
4. Whether 48% of the purchase price is exempt from sales tax for sales made prior to January
1, 2025 and 100% of the purchase price is exempt from state sales tax, and certain stateadministered local sales taxes, for sales made on and after January 1, 2025.
5. Whether sales of the prefabricated housing modules are sourced to the Taxpayer’s
Manufacturing Facility or to the building site.
1 The request disclosed Construction Affiliate as a related party.
Under paragraph (10)(d) of 1 CCR 201-1, Rule 2435-103.5, the Department agrees to apply this ruling to Construction Affiliate in addition to Taxpayer. However, the
ruling will not be applied to the tax liability of any other person including those that the request defines as “Third-Party
Contractors” in accordance with the rule.
PLR 25-001
May 8, 2025
Page 2
- Whether Construction Affiliate must pay local use taxes if the prefabricated housing modules
are used in the construction of homes at a building site in a jurisdiction different from where
the sale of the modules was sourced. - Whether Construction Affiliate must collect state and state-administered local sales tax when
the home is conveyed to the ultimate owner.
Conclusions - Taxpayer’s products are “manufactured homes” as that phrase is defined in section 42-1102(48.8), and used in section 39-26-721(1) and (2), C.R.S.2
- Taxpayer’s products are “modular homes” as that phrase is defined in section 39-1-102(8.3),
and used in section 39-26-721(3), C.R.S. - Taxpayer’s purchases of materials and components from suppliers for incorporation into
prefabricated housing modules are exempt from state and state-administered local sales
and use tax. - Sales of the prefabricated housing modules in Colorado prior to January 1, 2025, qualify for
the partial exemption from state sales tax provided under section 39-26-721(1), C.R.S.
Sales of the prefabricated housing modules in Colorado on and after January 1, 2025,
qualify for the full exemption from state sales tax provided under section 39-26-721(3)(b),
C.R.S., as amended by House Bill 24-1036.3 Exemptions from state-administered local
taxes will vary. - Sales of the prefabricated housing modules are sourced to the location where the
prefabricated housing modules are received by Construction Affiliate or other Third-Party
Contractors. - The Department declines to rule on this issue for the reasons discussed below.
- The conveyance of the completed home to its ultimate owner is not subject to state and
state-administered local sales tax.
2 As noted in the Department’s publication Sales Tax Topics: Prefabricated Housing, section 39-26-721, C.R.S.,
defines the term “manufactured housing” in subsections (1) and (2) differently from subsection (3). The publication
uses the term “manufactured housing” to refer exclusively to those homes exempt under subsection (3). To provide
similar clarity, this ruling will generally refer to taxpayer’s products as “prefabricated housing modules” and will use
the term “manufactured housing” only to the extent necessary to explain its ruling for issues 1 and 2 related to the
exemptions in subsections (1) and (2). Taxpayer does not suggest, nor does the Department conclude, that its
prefabricated housing modules are “manufactured housing” as that term is used in subsection (3) and in the
aforementioned guidance publication.
3 2024 Colo. Sess. Laws 2523, 2536.
PLR 25-001
May 8, 2025
Page 3
Background4
Taxpayer manufactures prefabricated housing modules at its Colorado manufacturing facility,
which is located within a state-administered city/town (the “Manufacturing Facility”). These
prefabricated housing modules do not have motive power, nor are they licensed as a vehicle.
Rather they are designed to be permanently affixed to land at a residential site and used as a
residential dwelling. Furthermore, Taxpayer’s prefabricated housing modules are not subject to
the National Manufactured Housing Construction and Safety Standards Act of 1974 (42 U.S.C.
§ 5401 et seq.) and do not require a certification label also known as a “HUD tag.”
Taxpayer purchases materials and components from unrelated vendors or suppliers, some of
which are located in Colorado, and some of which are located outside the State. These
materials and components include things like lumber, drywall, carpeting and flooring, shelving,
insulation, windows, doors, roofing materials, connectors, fasteners, electrical and plumbing
system components, and heating and air conditioning system components. The vendors and
suppliers either deliver these materials using their own vehicles, or they arrange for delivery of
the materials by common carrier. Delivery is to Taxpayer’s Manufacturing Facility. Taxpayer
uses the materials and components to manufacture various prefabricated housing modules.
Taxpayer sells all of these prefabricated housing modules to Construction Affiliate or to
unrelated third-party contractors (each, a “Third-Party Contractor” and collectively, the “ThirdParty Contractors”). Construction Affiliate (or a Third-Party Contractor) either takes title and
possession, itself, of the prefabricated housing modules at the Manufacturing Facility and then
transports the prefabricated housing modules to the ultimate building sites, or engages a thirdparty shipping company to pick up the modules at the Manufacturing Facility and transport them
to the building sites. At those building sites, Construction Affiliate incorporates the prefabricated
housing modules onto building foundations that have been prepared for that purpose. At that
time, Construction Affiliate conveys the completed residences to either individual customers that
will use them as their primary home residence, or to entities (including Internal Revenue Code
section 501(c)(3) tax-exempt entities) that will make them available to individuals and families
for residential use.
Discussion
Colorado imposes a sales tax on most sales of tangible personal property at retail, as well as
certain services.5 The term “tangible personal property” does not include real property, such as
land and buildings.6 However, until tangible personal property is built into real property such that
it becomes an integral and inseparable part of the realty, its retail sale remains subject to
Colorado sales tax.7
4 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 request, which is not an
indication that the Department found such facts relevant to its analysis. Some relevant facts may be 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.
5 Section 39-26-104, C.R.S.
6 1 CCR 201-4, Rule 39-26-102(15)(2)(a).
7 Id.
PLR 25-001
May 8, 2025
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The Colorado Revised Statutes authorize cities, towns, counties, and certain types of special
districts to impose a sales tax.8 These sales taxes are collected, administered, and enforced by
the Department in the same manner as the state sales tax.9 In most cases, these local sales
taxes are imposed upon the same property and services subject to the state sales tax.10 Cities,
towns, and counties are, however, permitted to deviate from the state sales tax base with
respect to certain exemptions.11 Special district sales taxes differ in very limited respects, and
those deviations are normally mandatory.12 This ruling will refer to the sales taxes imposed by
these cities, towns, counties, and special districts collectively as state-administered local sales
taxes.
In addition to these state-administered local sales taxes, certain self-collecting home-rule cities
may impose sales and use taxes under the independent authority allowed to them by the state
constitution.13 This ruling does not extend to the sales taxes imposed by those home-rule cities.
1. Taxpayer’s products are “manufactured homes” as that phrase is defined in section 42-1102(48.8), and used in section 39-26-721(1) and (2), C.R.S.
Construction contractors are generally regarded as retail purchasers of tangible personal
property that they will build into a building or structure.14 As such, contractors must generally
pay Colorado sales tax when purchasing such property.15 Accordingly, contractors will not
normally collect sales tax on the materials incorporated into a building or structure.16
Furthermore, because real property construction is not a taxable service, contractors will not
normally collect sales tax on separately stated charges for their labor.17
However, the taxable purchase price of tangible personal property sold after manufacturing
includes the gross value of all the materials used, labor and service performed, and the profit
8 Section 29-2-102, C.R.S. (regarding incorporated towns and cities); 29-2-103, C.R.S. (regarding counties). The
taxing authority for those entities that the Department refers to generally as “special districts” is found in the statutes
establishing or permitting the establishment of the entity. See, e.g., section 32-9-119(2)(a), C.R.S. (empowering the
board of the Regional Transportation District to impose a sales tax); 32-13-107(1)(a), C.R.S. (same with respect to
the board of the Scientific and Cultural Facilities District); 43-4-605(1)(j)(I) (same with respect to regional
transportation authorities).
9 Section 29-2-106, C.R.S. For special districts, refer to the enabling statutes as described in note 8, above.
10 Section 29-2-105, C.R.S. (with respect to cities and towns). For special districts, refer to the enabling statutes as
described in note 8, above.
11 Section 29-2-105(1)(d), C.R.S.
12
The most common deviation requires special districts to exempt sales of cigarettes from the districts’ sales taxes.
E.g., 29-1-204.5(3)(f.1), C.R.S. (regarding multi-jurisdictional housing authorities); 32-1-1003.5(5) (health assurance
districts).
13 Colo. Const. art. XX, § 6. Section 29-2-106(4) permits the Department to collect the sales taxes of home-rule cities
at their request. The Department generally does not distinguish these state-administered home-rule cities from other
state-administered cities and towns because subsection (4)(a)(I)(A) of that section requires them to conform their
ordinances to the requirements under article 2 of title 29 applicable to statutory cities and towns. This ruling applies
to state-administered home-rule cities accordingly.
14 1 CCR 201-5, Special Rule 10(2).
15 Id.
16 Id. Paragraph (3) of the special rule discusses the circumstances when a contractor is required to collect sales tax
on the sale of building materials and other property.
17 See A.D. Store Co., Inc. v. Dep’t of Revenue, 19 P.3d 680, 683 (Colo. 2001) (“[N]o service is taxable, except those
services specifically listed in the statute itself.”).
PLR 25-001
May 8, 2025
Page 5
thereon.18 Recognizing that this rule could create a disparity between the taxes applied to
prefabricated homes and site-built homes, Colorado’s statute allows a partial exemption from
sales tax for certain prefabricated homes.19
For purposes of the partial exemption in section 39-26-721(1) and (2), the term “manufactured
home” is defined by reference to section 42-1-102(48.8), C.R.S., which states:
“Manufactured home” means any preconstructed building unit or combination of
preconstructed building units, without motive power, where such unit or units are
manufactured in a factory or at a location other than the residential site of the completed
home, which is designed and commonly used for occupancy by persons for residential
purposes, in either temporary or permanent locations, and which unit or units are not
licensed as a vehicle.
As described in the factual basis for the request, Taxpayer’s products are within this definition of
“manufactured home.”
2. Taxpayer’s products are “modular homes” as that phrase is defined in section 39-1-102(8.3),
and used in section 39-26-721(3), C.R.S.
During the pendency of this request, the General Assembly enacted House Bill 24-1036
concerning the adjustment of certain tax expenditures.20 Section 36 of the bill amended section
39-26-721(3), C.R.S. Under prior law, subsection (3) provided a complete exemption for
“manufactured homes” and “tiny homes.” The term “manufactured home” in subsection (3)
referred to the definition at 39-1-102(7.8), C.R.S., which differs from the definition at section 421-102(48.8), C.R.S. Taxpayer’s products do not meet the definition of “manufactured home”
used by subsection (3) primarily because they are not subject to the National Manufactured
Housing Construction and Safety Standards Act of 1974 (42 U.S.C. § 5401 et seq.).
House Bill 24-1036 expanded the subsection (3) exemption to include “modular homes” as
defined in section 39-1-102(8.3), C.R.S., and any closed panel system utilized in construction of
a factory-built residential structure as defined in section 24-32-3302(10), C.R.S.21 Section 39-1102(8.3), C.R.S., defines “modular home” to mean:
any preconstructed factory-built building that:
(a) Is ineligible for a certificate of title pursuant to part 1 of article 29 of title 38, C.R.S.;
(b) Is not constructed in compliance with the “National Manufactured Housing
Construction and Safety Standards Act of 1974”, 42 U.S.C. sec. 5401 et seq., as
amended; and
18 1 CCR 201-4, Rule 39-26-102(7)(a)(8).
19 Section 39-26-721(1), C.R.S.
20 2024 Colo. Sess. Laws 2523.
21 Id. at 2536.
PLR 25-001
May 8, 2025
Page 6
(c) Is constructed in compliance with building codes adopted by the division of housing in
the department of local affairs.
As described in the factual basis for the request, Taxpayer’s products are within this definition of
“modular home.” As discussed further below, this brings Taxpayer’s products within the
expanded exemption created by House Bill 24-1036 effective January 1, 2025.
3. Taxpayer’s purchases of materials and components from suppliers for incorporation into the
prefabricated housing modules are exempt from state and state-administered local sales
and use tax.
Colorado sales and use taxes are imposed upon the vast majority of retail sales of tangible
personal property and the storage, use, or consumption of tangible personal property purchased
at retail.22 Retail sales include all sales made within the state except wholesale sales.23
Likewise, the sale and purchase of tangible personal property by a person engaged in the
business of manufacturing or compounding for sale, profit, or use, any article, substance, or
commodity, which tangible personal property enters into the processing of or becomes an
ingredient or component part of the product or service which is manufactured, compounded, or
furnished is deemed to be an exempt wholesale sale.24
Taxpayer is engaged in the business of manufacturing prefabricated housing modules, which
constitute “articles” of tangible personal property. To manufacture these prefabricated housing
modules, Taxpayer purchases materials including lumber, drywall, carpeting and flooring,
shelving, insulation, windows, doors, roofing materials, connectors, fasteners, electrical and
plumbing system components, and heating and air conditioning system components. Taxpayer
combines these materials to create these prefabricated housing modules, which it then sells to
Construction Affiliate and other Third-Party Contractors. These materials are essential
components of the finished product.25 Therefore, their purchase by Taxpayer, and their
subsequent storage and use by Taxpayer, is exempt from Colorado sales and use tax.
Because the wholesale sale exemption set forth in section 39-26-102(20)(a), C.R.S., is not an
optional exemption, it applies to state-administered local jurisdictions.26
4. Sales of the prefabricated housing modules in Colorado prior to January 1, 2025, qualify for
the partial exemption from state sales tax provided under section 39-26-721(1), C.R.S.
Sales of the prefabricated housing modules in Colorado on and after January 1, 2025,
qualify for the full exemption from state sales tax provided under section 39-26-721(3)(b),
C.R.S., as amended by House Bill 24-1036.27 Exemptions from state-administered local
taxes will vary.
As discussed above, Taxpayer’s prefabricated housing modules are “manufactured homes” as
defined in section 42-1-102(48.8), C.R.S. Therefore, 48% of their purchase price is exempt
22 Sections 39-26-713(1)(a) and 39-26-202(1)(b), C.R.S.
23 Section 39-26-102(9), C.R.S.
24 Section 39-26-102(20)(a), C.R.S.
A corresponding use tax exemption allowed by section 39-26-713(2)(b), C.R.S.
25 See C.F. & I. Steel Corp. v. Charnes, 637 P.2d 324, 328 (Colo. 1981).
26 See, section 29-2-105(1)(d), C.R.S.
above.
27 2024 Colo. Sess. Laws 2523, 2536.
For special districts, refer to the enabling statutes as described in note 8,
PLR 25-001
May 8, 2025
Page 7
from state sales tax when the prefabricated housing modules are sold at retail to Construction
Affiliate and other Third-Party Contractors in this state prior to January 1, 2025.
Taxpayer’s prefabricated housing modules are also “modular homes” as defined in section 39-1102(8.3), C.R.S. Therefore, sales made on and after January 1, 2025, will be fully exempt for
state sales tax purposes. The full exemption allowed by section 39-26-721(3)(b), C.R.S., will
also apply to state-administered local jurisdictions other than cities, towns, and counties.
Pursuant to section 29-2-105(1)(d), C.R.S., state-administered cities, towns, and counties are
granted the option whether to enact certain state sales tax exemptions and apply them to their
local taxes collected by the Department. The full exemption in section 39-26-721(3), C.R.S., is
one of the option exemptions.28 Therefore, the full exemption will apply in those cities, towns,
and counties that have expressly adopted the option exemption.29 Conversely, the 48%
exemption allowed by section 39-26-721(1), C.R.S., is not an option exemption.30 As a result,
sales in those cities, towns, and counties that do not adopt the option in section 29-2105(1)(d)(I)(P), C.R.S., are still subject to the 48% exemption.31
Department publication DR 1002 (available on the Department’s website) details whether stateadministered local jurisdictions apply a particular option exemption. Exemptions can also be
reviewed for a particular address or location using the Department’s geographic information
system, which is also accessible from the Department’s website.
5. Sales of the prefabricated housing modules are sourced to the location where the
prefabricated housing modules are received by Construction Affiliate or other Third-Party
Contractors.
State statute provides a series of rules for purposes of determining where a sale of tangible
personal property is made.32 Those rules provide:
(I)
If tangible personal property, commodities, or services are received by the
purchaser at a business location of the seller, the sale is sourced to that business
location;
(II)
If tangible personal property, commodities, or services are not received by the
purchaser at a business location of the seller, the sale is sourced to the location
where receipt by the purchaser occurs, including the location indicated by
instructions for delivery to the purchaser, if that location is known to the seller;
(III) If rules (I) or (II) do not apply, the sale is sourced to the location indicated by an
address for the purchaser that is available from the business records of the seller
28 Section 29-2-105(1)(d)(I)(P), C.R.S.; 2024 Colo. Sess. Laws at 2536–37.
29 See section 29-2-105(1)(d)(III), C.R.S. (clarifying that in the absence of an express provision regarding the
exemptions listed in subsection (1)(d)(I), the ordinances and resolutions must be construed as imposing the tax).
30 See section 29-2-105(1)(d)(I), C.R.S.
31 See id. (stating that sales exempt pursuant to article 2 of title 29 are the same as sales exempt pursuant to part 7
of article 26 of title 39 except for those optional exemptions listed in that subsection).
32 Section 39-26-104(3)(a), C.R.S.
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that are maintained in the ordinary course of the seller’s business, when use of this
address does not constitute bad faith;
(IV) If rules (I), (II), or (III) do not apply, the sale is sourced to the location indicated by
an address for the purchaser obtained during the consummation of the sale,
including, if no other address is available, the address of a purchaser’s payment
instrument, when use of this address does not constitute bad faith; or
(V)
If rules (I), (II), (III), or (IV) do not apply, or if the seller is without sufficient
information to apply the rules set forth in rules (I), (II), (III), or (IV), the sale is
sourced to the location indicated by the address from which the tangible personal
property, commodity, or service was shipped.33
As used in these rules, “receipt” or “receive” means taking possession of tangible personal
property or commodities but does not include possession by a shipping company on behalf of
the purchaser.34
The request states that in some cases Construction Affiliate or Third-Party Contractors take title
and possession of the prefabricated housing modules at the Manufacturing Facility and then
transports the prefabricated housing modules to the ultimate building sites. In these cases, the
sales of the prefabricated housing modules are sourced to the Manufacturing Facility.35 All or
part of the purchase price is exempt from tax as discussed above.36 In other cases,
Construction Affiliate or Third-Party Contractors engage a third-party shipping company to pick
up the prefabricated housing modules at the Manufacturing Facility and transport them to the
building sites.
Because the taking of possession by a third-party shipping company does not constitute
“receipt” by Construction Affiliate or the Third-Party Contractor, “receipt” occurs at the location
where Construction Affiliate or the Third-Party Contractor takes such possession.37 In these
cases, the sourcing rules must be applied in turn. That is, the sale is not sourced to the
Manufacturing Facility under rule (I).38 If Taxpayer knows the location where Construction
Affiliate or the Third-Party Contractor takes possession, the sale is sourced to that location
under rule (II).39 If Taxpayer does not know that location, the sale is sourced to the location
indicated by an address for the purchaser available from the business records of the seller or
obtained during the consummation of the sale under rules (III) or (IV), respectively.40 At last, if
none of these rules can be applied, the sale would ultimately be sourced to the Manufacturing
Facility under rule (V) as the location from which the prefabricated housing modules were
33 Id.
34 Id. at (3)(d)(II).
35 Id. at (3)(a)(I).
36 Sections 39-26-104(1)(a) and 39-26-721(1), C.R.S.
37 Section 39-26-104(3)(d)(II), C.R.S.
38 Id. at (3)(a)(I).
39 Id. at (3)(a)(II).
40 Id. at (3)(a)(III) and (3)(a)(IV).
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shipped.41 If the sale is sourced to a location in Colorado, all or part of the purchase price is
exempt from state sales tax as discussed above.42
6. The Department declines to rule on whether Construction Affiliate must pay local use taxes
if the prefabricated housing modules are used in the construction of homes at a building site
in a jurisdiction different from where the sale of the prefabricated housing modules was
sourced.
Your request logically proceeds next to question whether Construction Affiliate must pay local
use taxes if the prefabricated housing modules are used in the construction of homes at a
building site in a jurisdiction different from where the sale of the prefabricated housing modules
was sourced. The Department is required to issue private letter rulings at the request of a
taxpayer in most circumstances.43 However, by definition, a private letter ruling is limited to a
written determination “on the tax consequences of a proposed or completed transaction under
any tax administered by the department pursuant to section 39-21-102. . . .”44 Except for the
use taxes imposed upon motor vehicles and collected pursuant to section 39-26-208, C.R.S.,
the use taxes imposed pursuant to section 29-2-109, C.R.S., are collected, administered, and
enforced by the city, town, or county imposing them.45 Because it lacks the authority to do so,
the Department declines to issue a private letter ruling on this question.
7. The conveyance of the completed home to its ultimate owner is not subject to state and
state-administered local sales tax.
Colorado imposes a sales tax on most sales of tangible personal property at retail, as well as
certain services.46 The term “tangible personal property” does not include real property, such as
land and buildings.47 At various building sites, Construction Affiliate incorporates the
prefabricated housing modules sold to it by Taxpayer onto building foundations that have been
prepared for that purpose. Construction Affiliate then conveys the completed residences to
either individual customers that will use them as their primary home residence, or to entities
(including Internal Revenue Code § 501(c)(3) tax-exempt entities) that will make them available
to individuals and families for residential use. When conveyed to Construction Affiliate’s
customers, the prefabricated housing modules have become an integral and inseparable part of
the realty. Therefore, the conveyance is not subject to state or state-administered local taxes,
which apply only to the sale of tangible personal property and certain services.48
Miscellaneous
This ruling is premised on the assumption that Taxpayer has completely and accurately
disclosed all material facts, that all representations are true and complete, and that Taxpayer
has otherwise complied with the requirements of section 24-35-103.5, C.R.S., and the rules
41 Id. at (3)(a)(V).
42 Sections 39-26-104(1)(a) and 39-26-721(1), C.R.S.
43 Section 24-35-103.5(2), C.R.S.
44 Id. at (1)(b).
45 Section 29-2-106(3)(a), C.R.S.
46 Section 39-26-104, C.R.S.
47 1 CCR 201-4, Rule 39-26-102(15)(2)(a).
48 See sections 39-26-104(1)(a), C.R.S. and 29-2-105(1)(d), C.R.S.
statutes as described in note 8, above.
For special districts, refer to the enabling
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Page 10
promulgated pursuant thereto. The Department reserves the right, among others, to
independently evaluate Taxpayer’s facts, 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.
As discussed above, 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.