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.”