Taxability of Computer Software and Maintenance Agreements in Colorado

Thursday, April 19th, 2012

 
 
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Colorado
General

The Colorado Department of Revenue recently revised its guidance on the taxability of computer software sold in the state. Colo. Tax FYI Publication: Sales 89 (Dept. of Revenue Mar. 2012) (available here). As of July 1, 2012, computer software will be subject to Colorado sales and use tax if it meets the following three criteria:

  • The computer software is pre-packaged for repeated sale or license;
  • The use of the software is governed by a tear-open non-negotiable license agreement; and
  • The software is delivered to the customer in a tangible medium.

Software that is delivered to the customer without any tangible property (e.g., electronically delivered) will not be subject to tax as tangible personal property beginning July 1, 2012. Previously, computer software was subject to tax regardless of how it was delivered.

This change in treatment for software has ripple effects for software maintenance agreements. Mandatory maintenance agreements purchased with taxable computer software will be subject to tax, regardless of whether the charge for the maintenance agreement is separately stated on the customer's invoice. On the other hand, optional maintenance agreements purchased with taxable computer software are exempt from tax if the charge for such agreement is separately stated on the customer's invoice. If the charge for an optional maintenance agreement is not separately stated, the entire charge will be subject to tax.


About TTR

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.

Please visit TTR on the web at www.ttrus.com or call 866.578.8193.

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