Colorado Uses True Object Test to Determine Web-Based Service Is Not Subject to Tax

Wednesday, February 29th, 2012


The Colorado Department of Revenue (DOR) recently released a private letter ruling explaining that a web-based service for sending, receiving, and tracking large digital files via the Internet is a non-taxable service. Colo. Priv. Ltr. Rul. No. PLR-11-007 (Dept. of Revenue Dec. 20, 2011). To reach its conclusion, the DOR had to examine whether the transactions at issue were the sale of services or the rental of tangible personal property (or, more precisely, the rental of the computer servers and software used to carry out the transactions). Under Colorado case law, the determination of whether a transaction is a service or a mixed transaction that includes services along with the sale of tangible personal property is made on a case-by-case basis by considering the "totality of the circumstances" in order to determine the "essence" or "true object" of the transaction. The DOR reasoned that these transactions were similar to ubiquitous, non-taxable email services. Furthermore, the DOR stated its belief that the companies carrying out these activities are most commonly understood to be providers of a service rather than lessors of computer software or servers. Based on this reasoning, the DOR determined that this web-based service is, indeed, a non-taxable service and not the rental of tangible personal property.

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Transaction (buying or selling things), Tax (the tax on this activity), Resources (our people, our website, our support services) - TTR, Inc.

TTR has a website that companies subscribe to and use daily. This website provides a list of everything that can be bought or sold in the U.S. It provides simple answers to whether buying or selling these items is taxable (subject to a sales tax or other tax), and it provides all the legal authority to support these tax answers.

TTR likes to keep things simple and fun, which is why it has great people who provide help to clients on any support questions they have about transaction tax issues.

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