Colorado – Taxability of Computer Software

SALT Report 1534 – Effective July 1, 2012 computer software in Colorado will be subject to sales or use tax if it meets all of the following criteria:

  • The computer software is prepackaged for repeated sale or license,
  • The use of the computer software is governed by a tear-open nonnegotiable license agreement, and
  • The computer software is delivered to the customer in a tangible medium
Computer software is not considered “delivered to the customer in a tangible medium” if it is provided through an application service provider, delivered by electronic computer software delivery, or transferred by load and leave computer software delivery.
Mandatory Maintenance Agreements
Charges for maintenance agreements that the retailer requires buyers to purchase as part of their purchase of computer software are subject to sales tax, regardless of whether the charge for the maintenance agreement is separately stated on the customer’s invoice or the maintenance contract.
Optional Maintenance Agreements
Charges for optional maintenance agreements that are part of a purchase of computer software are not subject to tax if the maintenance charges are separately stated on the customer’s invoice. If the maintenance charges are not separately stated, then the total price for both the taxable computer software and the maintenance agreement is subject to sales tax.
If a customer receives upgrades to taxable computer software pursuant to an optional maintenance agreement and the upgrade is delivered by a tangible medium, such as a CD or flash drive, then the entire charge for the maintenance agreement is subject to sales tax, unless the charge for the upgrade is separately stated in the maintenance contract or the customer’s invoice.
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