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Colorado Sales Tax Changes On Computer Software


Colorado is changing its definition of computer software that is taxed starting July 1, 2012.

Up until June 30, 2012, the following definitions will be applied to taxability of computer software:

  • Computer software, including prewritten upgrades that is not designated or developed to the specifications of a specific purchaser.
  • Computer software designed and developed to the specifications of a specific purchaser but then sold to another purchaser.
  • Software that is modified or enhanced even if such modification or enhancement is designed and developed to the specification of a purchaser.

Mandatory maintenance agreements are taxable. Optional ones are not.

Starting July 1, 2012, the following definitions will be applied:

  • The software is pre-packaged for repeated sale or license;
  • The use of the software is governed by a tear-open non-negotiable license agreement;
  • The software is delivered to the customer in a tangible medium. Software is not delivered to the customer in a tangible medium if it is provided through an application service provider, delivered by electronic software delivery, or transferred by load and leave software delivery.

Mandatory maintenance agreements are taxable. Optional ones are not, if they are stated separated on the customer’s invoice.  If upgrades are “…delivered by a tangible medium, such a s 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 a separately stated in the maintenance contract or customer’s invoice.”

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Avalara Author
Susan McLain
Avalara Author Susan McLain
Susan McLain began her career as a technical writer in technology industries such as satellite networking and medical devices. Her skills encompass technical and marketing writing, usability engineering, verification and validation testing and protocol writing, requirements development, business analysis, technical illustration/graphic design and marketing. She has owned her own business providing service to small to medium sized business and in other positions, she has been in project management, documentation and marketing. She is currently the content specialist for Avalara helping to “make sales tax less taxing.”