Use tax on building permits often confuses contractors. Many pay this tax at the time they pull a permit, then get charged sales tax again by their vendors. Without proper communication and documentation, this can lead to paying tax twice on the same materials.
Here is what you need to know:
Paying use tax with your permit usually covers your local tax obligation to the city or county that issued it. However, that does not mean you are off the hook. You may still owe other taxes, like state sales tax, depending on the where you buy materials and where the project takes place.
Homebuilders and contractors should understand when and where use tax on building permits applies to avoid paying local or state tax twice.:
- Send a copy of the paid permit to your vendors so they can adjust their invoices
- If you notice double taxation, ask your vendor for a refund or credit, not the permit office
It is also important to understand your role in the tax process:
- Home builders usually act as end users. In most cases, they pay use tax when pulling the permit, which satisfies their local tax obligation for the materials they will use on that project
- Subcontractors may be treated as either end users or resellers, depending on how their contracts are structured and which state they operate in. Contractors who only provide labor generally do not owe sales tax. Those who supply materials may need to pay tax at the time of purchase unless they give the supplier a valid resale certificate
Always verify your classification with a tax professional or municipality. Clarifying your role and understanding use tax on building permits can help prevent costly errors and keep your business compliant.
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Want to learn more about how states handle sales and use tax for contractors? Visit the Colorado Department of Revenue for guidance.