# Colorado Contractor Taxes and Licensing Guide

Generally no. Colorado doesn't tax construction labor. On a lump-sum job you pay sales tax on the building materials you buy. On a time-and-materials job you collect sales tax on the marked-up materials price, not on labor that's listed separately. Home-rule cities can add their own sales and use tax, often collected at the permit counter.

## Key takeaways

- Contract type decides the tax. Lump-sum: you're the consumer and pay tax on materials. Time-and-materials: you're a retailer and collect tax on marked-up materials.
- The state sales tax rate is 2.9%. Cities, counties and special districts add their own, and many home-rule cities collect their own tax directly.
- A building permit showing local use tax paid can exempt materials from city and county sales tax, but not from state or special district tax.
- There's no state general contractor license. Electricians and plumbers are licensed by state boards under DORA's Division of Professions and Occupations.
- Employers with one or more employees must carry workers' comp, from a commercial carrier, Pinnacol Assurance or approved self-insurance.

## Does Colorado charge sales tax on contractor labor?

Not on the labor itself. What matters in Colorado is how your contract is written. The Department of Revenue's FYI Sales 6 splits jobs into two kinds, and the tax lands in a different place for each. Our [labor vs. materials guide](https://www.brix.so/learn/sales-tax-on-labor-vs-materials) shows how other states handle the same question.

- **Lump-sum contract.** One price for the whole job, with no separate materials line. DOR says "the contractor is treated as the consumer of all construction and building materials" on the job. You pay sales tax when you buy the lumber and drywall, and you don't collect tax from the owner. You don't need a sales tax license for lump-sum work.
- **Time-and-materials contract.** Materials and labor are priced separately. Here you're treated as a retailer of the materials. You buy them tax-free with your sales tax license, then "collect sales tax from its customer on the marked up price of the materials." DOR says a retailer-contractor "should not collect tax on installation or labor charges if such charges are listed separately."

> **DOR's own garage example, with the state 2.9% applied (illustrative math)**
>
> FYI Sales 6 uses a $29,000 garage with $15,000 of materials. On a time-and-materials contract, materials are billed at $19,000 (with $4,000 markup) and labor at $10,000. You'd collect state tax on the $19,000 only: about $551 at 2.9%. The $10,000 of labor isn't taxed.
>
> On a lump-sum contract for the same $29,000, you collect nothing from the owner. You pay state tax on the $15,000 of materials when you buy them: about $435. Local taxes come on top in both cases, so your real numbers will be higher.

Watch the items that never count as building materials. DOR lists stoves, refrigerators, furnaces, air conditioners, garage doors, ready-made cabinets, electrical fixtures, carpet and sod as "non-building materials." If you sell and install those, you're the retailer and collect sales tax on them, whatever kind of contract you signed.

## When do you owe use tax on materials and tools in Colorado?

Anything you use up on the job is yours to pay tax on. DOR says contractors "are consumers of any equipment and supplies they use in their work and must pay sales tax on these items at the time of purchase." If a seller didn't charge you Colorado tax, use tax is due instead. Our page on [use tax for contractors](https://www.brix.so/learn/use-tax-for-contractors) walks through how that works.

- **Out-of-state orders.** DOR says contractors must remit consumer use tax on taxable items they haven't paid tax on, "including purchases made from vendors located outside of Colorado." Lump-sum contractors with no sales tax license report this on the Consumer Use Tax Return (DR 0252) or through Revenue Online.
- **Pulling from your own stock.** A retailer-contractor who bought materials tax-free, then uses them on a lump-sum job, owes use tax on those materials.
- **Exempt projects.** Building materials that become part of a structure owned by a government, a qualifying charity or a nonprofit school are exempt from state sales and use tax. You must file a Contractor Application for Exemption Certificate (DR 0172) before starting work, with a copy of the signed contract page. The prime gets one certificate per project and gives copies to subs. Tools and equipment you use on that job are still taxable.

## Why do home-rule cities make Colorado sales tax harder?

This trips up contractors new to Colorado. DOR collects tax for the state, special districts, most counties and many cities. But cities with a home-rule charter can choose to run their own sales and use tax. DOR calls these "self-collected," and says they "are not administered by the Department." It also notes that all counties with a sales tax are state-collected except Denver County and Broomfield County.

For building materials, local use tax is often paid when you pull the permit. Under Colorado law, no city or county sales tax applies to construction and building materials if you show the seller a building permit or similar document that shows local use tax "has been paid or is required to be paid." That permit doesn't touch state or special district tax, so you still pay those at the counter. DOR says plainly that it "does not administer use taxes for any city or county," so ask each city's tax office how it handles contractors.

DOR's publication DR 1002 lists rates and home-rule city contacts and is updated every January 1 and July 1. If you file sales tax in several self-collecting cities, DOR's optional SUTS system lets you file one return for state-collected taxes and participating home-rule cities. Not every city takes part.

## Which Colorado contractor licenses are state-issued?

Colorado has no statewide general contractor license. DORA's consumer page says "Not all occupations are licensed, such as roofers and general contractors," and points homeowners to their city or county. Some Colorado cities and counties run their own contractor licensing, so check each place you pull permits. Electrical and plumbing work are different: state boards license both. See our [contractor license guide](https://www.brix.so/learn/contractor-license) for the bigger picture.

**Colorado contractor credentials by trade (checked 2026-10-19)**

| Trade | Agency | Credential | Link |
| --- | --- | --- | --- |
| General contractor, remodeler, roofer | City or county building department | No state license. Local contractor license where the city or county requires one. | [DORA Home & Repair](https://dora.colorado.gov/consumer-protection-home-and-repair) |
| Electrical | State Electrical Board (DORA, Division of Professions and Occupations) | Electrical contractor registration. You must hold or employ a licensed master electrician as the responsible individual, who can serve one company only, and show compliance with workers' comp and unemployment laws. Individuals hold residential wireman, journeyman or master licenses. Registrations expire September 30 every three years. | [Electrical applications](https://dpo.colorado.gov/Electrical/Applications) |
| Solar (photovoltaic) installer | State Electrical Board | New registration under SB 25-165, required by December 31, 2026. The board says applications will open in late 2026 and require at least one NABCEP-certified employee. | [Electrical applications](https://dpo.colorado.gov/Electrical/Applications) |
| Plumbing | State Plumbing Board (DORA, Division of Professions and Occupations) | Plumbing contractor registration, plus individual residential, journeyworker or master plumber licenses. Master applicants need five full-time years (8,500 hours) of experience. Licenses and contractor registrations expire the last day of February in odd-numbered years. | [Plumbing applications](https://dpo.colorado.gov/Plumbing/Applications) |
| Water conditioning | State Plumbing Board | Water conditioning contractor registration | [Plumbing applications](https://dpo.colorado.gov/Plumbing/Applications) |

_We didn't find a state HVAC license on DPO's site. Ask the building department in each city or county where you work about mechanical licensing and permits._

## What income tax do Colorado contractors pay?

Colorado has a flat income tax. DOR's individual income tax guide lists the rate at 4.4% for tax year 2025, after a temporary cut to 4.25% for 2024. The table on that page had no 2026 row when we checked, so confirm the current year's rate before you plan around it. Sole proprietors and most LLC owners pay on business profit through their personal return.

C corporations pay corporate income tax. DOR's corporate guide also lists 4.4% for 2025. Either way, set cash aside every month for federal and state income tax, not just the sales tax you collect. The [quarterly estimated tax calculator](https://www.brix.so/tools/quarterly-estimated-tax-calculator) gives you a starting number to bring to your CPA.

## Is workers' comp required for Colorado contractors?

Yes, once you have a single employee. The Division of Workers' Compensation says Colorado employers "are required to carry workers' compensation insurance if they have one or more employees," whether part-time, full-time or family. Anyone you pay is presumed to be an employee. You can buy from a commercial carrier or qualify to self-insure, and the Division notes Pinnacol Assurance "is required to provide workers' compensation coverage for any Colorado employer." Our [workers' compensation guide](https://www.brix.so/learn/workers-compensation) explains how premiums are set.

## What else should you check before a Colorado job?

- **Local rates.** Combined rates vary by city, county and special district. Look up the job's location in DR 1002 or Revenue Online, and call home-rule cities directly.
- **Write the contract on purpose.** Lump-sum and time-and-materials jobs are taxed differently, so decide which you're signing before you buy materials.
- **Lien rights.** Read up on [mechanics liens](https://www.brix.so/learn/mechanics-lien) before you start, so you know your notice deadlines.
- **Working nearby?** Rules change at the border. See our pages for [Wyoming](https://www.brix.so/taxes/wyoming), [Utah](https://www.brix.so/taxes/utah) and [New Mexico](https://www.brix.so/taxes/new-mexico).

> **Not tax advice**
>
> This is a plain-language summary of Colorado guidance on the date shown, not tax or legal advice. Home-rule city rules vary, and how your contracts are written changes the answer. Check with DOR and the cities you work in, or hire a CPA who knows Colorado construction.

BRIX sorts your job expenses, keeps sales tax and 1099 sub payments tracked, and flags quarterly estimated tax dates, so your CPA gets clean numbers. Invoices and payments sync with QuickBooks. BRIX doesn't file taxes or give tax advice.

- [Bookkeeping and tax help](https://www.brix.so/features/bookkeeping-taxes): Keeps expenses categorized, tracks 1099 subcontractors and sales tax, and reminds you of quarterly estimated tax dates. BRIX does not file taxes or give tax advice.
- [QuickBooks sync](https://www.brix.so/integrations/quickbooks): Syncs customers, invoices and payments with QuickBooks so the books match the jobs.

## Frequently asked questions

### Is construction labor taxable in Colorado?

No. On a time-and-materials job, DOR says you shouldn't collect tax on labor or installation that's listed separately. On a lump-sum job you don't collect sales tax from the owner at all. You pay tax on the materials when you buy them instead.

### Do I need a Colorado sales tax license as a contractor?

Only if you're a retailer-contractor. DOR says contractors doing only lump-sum work on real property should not get a sales tax license. If you sign time-and-materials contracts or sell materials or appliances over the counter, you need one.

### What's the difference between lump-sum and time-and-materials for tax?

On a lump-sum contract you're the consumer, so you pay sales tax on materials at purchase. On a time-and-materials contract you're the retailer, so you buy materials tax-free and collect tax on the marked-up materials price. Labor listed separately isn't taxed either way.

### How does building permit use tax work in Colorado?

If you show a supplier a building permit or similar document that shows local use tax has been or will be paid, city and county sales tax doesn't apply to those building materials. State and special district sales tax still applies. Each city or county sets its own use tax process, so ask the local office.

### Does Colorado have a state general contractor license?

No. DORA says general contractors and roofers aren't licensed at the state level. Many cities and counties have their own contractor licenses, so check each place you work. Electricians and plumbers do need state credentials from DPO's boards.

### Can I skip tax on materials for a school or city job?

Materials that become part of a project owned by a government, a qualifying charity or a nonprofit school are exempt from state sales and use tax. You must get an exemption certificate with form DR 0172 before work starts. Tools, equipment and supplies you use on the job are still taxable.

### Do I need workers' comp in Colorado if I only have one helper?

Yes. The Division of Workers' Compensation says employers with one or more employees must carry coverage, including part-time workers and family members. You can buy from a commercial carrier, and Pinnacol Assurance is required to cover any Colorado employer.

## Related

- [Do Contractors Charge Sales Tax on Labor or Materials?](https://www.brix.so/learn/sales-tax-on-labor-vs-materials)
- [What Is Use Tax for Contractors?](https://www.brix.so/learn/use-tax-for-contractors)
- [What Is a Contractor License?](https://www.brix.so/learn/contractor-license)
- [What Is Workers' Compensation Insurance?](https://www.brix.so/learn/workers-compensation)
- [What Is a Mechanic's Lien?](https://www.brix.so/learn/mechanics-lien)
- [Quarterly Estimated Tax Calculator for Self-Employed Contractors (2026)](https://www.brix.so/tools/quarterly-estimated-tax-calculator)
- [Wyoming Contractor Taxes and Licensing](https://www.brix.so/taxes/wyoming)
- [Utah Contractor Taxes and Licensing Guide](https://www.brix.so/taxes/utah)
- [New Mexico Contractor Taxes and Licensing Guide](https://www.brix.so/taxes/new-mexico)
- [Self-Employment Tax Calculator (2026)](https://www.brix.so/tools/self-employment-tax-calculator)

## Sources

- [Colorado DOR, FYI Sales 6: Contractors and Retailer-Contractors (lump-sum vs. time-and-materials, use tax, building permits, DR 0172)](https://tax.colorado.gov/sites/default/files/documents/FYI_Sales6.pdf) (checked 2026-10-19)
- [Colorado DOR, Sales Tax Guide (2.9% state rate; home-rule cities; building materials and local use tax)](https://tax.colorado.gov/sales-tax-guide) (checked 2026-10-19)
- [Colorado DOR, Local Government Sales Tax (self-collected home-rule cities; DR 1002)](https://tax.colorado.gov/local-government-sales-tax) (checked 2026-10-19)
- [Colorado DOR, Sales & Use Tax System (SUTS) FAQ](https://tax.colorado.gov/SUTS-FAQ) (checked 2026-10-19)
- [Colorado DOR, DR 0172 Contractor Application for Exemption Certificate](https://tax.colorado.gov/sites/tax/files/documents/DR0172_2025.pdf) (checked 2026-10-19)
- [Colorado DOR, Individual Income Tax Guide (rate table by tax year)](https://tax.colorado.gov/individual-income-tax-guide) (checked 2026-10-19)
- [Colorado DOR, Corporate Income Tax Guide](https://tax.colorado.gov/corporate-income-tax-guide) (checked 2026-10-19)
- [DORA, Home & Repair (general contractors and roofers not licensed by the state)](https://dora.colorado.gov/consumer-protection-home-and-repair) (checked 2026-10-19)
- [DPO, State Electrical Board applications and contractor registration](https://dpo.colorado.gov/Electrical/Applications) (checked 2026-10-19)
- [DPO, State Plumbing Board applications and contractor registration](https://dpo.colorado.gov/Plumbing/Applications) (checked 2026-10-19)
- [CDLE Division of Workers' Compensation, Employers (insurance requirements)](https://cdle.colorado.gov/dwc/employers) (checked 2026-10-19)

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Written by BRIX Editorial Team. Last updated 2026-10-19. General information, not tax, legal or financial advice.
Canonical: https://www.brix.so/taxes/colorado