Are a web-hosted exemption-certificate portal and an online sales/use tax-return preparation service subject to Colorado sales or use tax?

Plain-English summary

A company that serves retailers asked whether two web-hosted products are subject to Colorado sales or use tax:

• Product A — exemption-certificate portal. When a retailer makes an exempt sale, it directs the customer to the company's internet portal, which hosts exemption certificates for all fifty states. The customer picks the right state's certificate, fills it out online, prints, signs, and faxes it to the company's server; the signed certificate is then available to the retailer in PDF on the company's website. No tangible personal property changes hands.
• Product B — tax-return preparation. The client sends monthly sales/use tax data electronically; the company runs it through tax-prep software, generates and files the paper and electronic returns with the taxing jurisdictions, and posts electronic copies back to the client. Again, no tangible personal property is transferred between the parties.

The Department's guidance: both are non-taxable services.

Why. Colorado imposes sales and use tax on the sale, use, storage, and consumption of tangible personal property (§ 39-26-104), and — with limited exceptions — services are not taxed. Tax-return preparation is generally a service, even though a tangible product (the return and forms) is delivered to the client (Special Regulation 52, Service Enterprise). And in both products, the company confirmed no tangible personal property is transferred among the parties — so neither is a taxable sale of property.

A caution the Department volunteered. Although the company didn't ask, the Department noted that an online exemption-certificate process may not be sufficient in every case. Some exemptions require the purchaser to produce the actual certificate the Department issued — for example, a charitable organization must give the retailer a copy of its Department-issued certificate (FYI Sales 1). In other cases a specific form is required — for example, a buyer of certain farm equipment must provide an affidavit that it will be used for agricultural purposes (Form DR 0511; FYI Sales 75). So a generic online certificate won't always satisfy the documentation an exemption demands.

What this means for you

SaaS and online-service providers

If your product is access to a web-hosted service and no tangible personal property is transferred, it generally isn't subject to Colorado sales/use tax — services are taxed only by limited exception. Document that what you deliver is a service (data processing, preparation, hosting), not tangible property.

Tax-prep and compliance firms

Preparing and filing returns is a service, not a taxable sale, even though you hand over a physical return (Special Regulation 52). The incidental paper doesn't convert the service into a sale of goods.

Retailers relying on online exemption certificates

A web-generated certificate is convenient but not always enough. Confirm the specific exemption's documentation rules — some require the Department-issued certificate (e.g., charitable buyers) or a particular form/affidavit (e.g., farm equipment, Form DR 0511). Keep verifiable records; the burden of proving an exempt sale is on you.

Common questions

Q: Is our web-based exemption-certificate portal taxable in Colorado?
A: No. It's a service and transfers no tangible personal property, so it isn't subject to Colorado sales/use tax.

Q: Is sales-tax-return preparation taxable?
A: No. Return preparation is a service (Special Regulation 52), even though you deliver a physical return. With limited exceptions, services aren't taxed.

Q: Can our customers rely on the online certificate for every exemption?
A: Not necessarily. Some exemptions require the actual Department-issued certificate (e.g., charitable organizations) or a specific form/affidavit (e.g., farm equipment). Check the rules for each exemption.

Citations and references

Statutes, rules, and publications:
- § 39-26-104, C.R.S. (sales/use tax on tangible personal property; most services not taxed)
- Special Regulation 52 (Service Enterprise — tax-return preparation is a service)
- FYI Sales 1 (charitable-organization certificate); Form DR 0511 & FYI Sales 75 (farm-equipment exemption affidavit)

Related rulings

• [[plr-11-007-private-letter-ruling]] — web-hosted file transfer is a non-taxable service, not a sale of property
• [[gil-13-020-electronically-delivered-software]] — taxability turns on tangible property vs. service/intangible delivery
• [[gil-17-012-software-and-related-services]] — separating taxable software from non-taxable services

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-09-011.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

GIL-09-011
February 24, 2009
XXXXXXXXXXXX
Attn: XXXXXXXXX
XXXXXXXXXXXX
XXXXXXXXXXXX
Re: XXXXXXXXXX
Dear XXXXXXXX,
You request a determination of the taxability of two products provided by XXXXXXXX
(“Taxpayer”). The Department issues both general information letters and private letter rulings.
General information letters provide general guidance on tax issues and are not binding on the
department. Private letter rulings typically address the applicability of tax to a specific set of
facts, are binding on the department, and require payment of a fee. For more information about
letters and rulings, please see Department Regulation 24-35-103.5, which you can view on our
web site at:
www.colorado.gov/revenue/tax and go to FYI/Publication > Rulings
Your request does not conform to the requirements for private letter ruling request. I will initially
treat your request as one for a general information letter. However, you may resubmit this as a
private letter ruling request.
Issues
Is the provisioning of XXXXX [Product A] and XXXXXXX [Product B] subject to sales or use tax?
Background
You provide the following information. Taxpayer provides two web-hosted products: XXXXX
[Product A] and XXXXXXX [Product B]. Taxpayer’s clients are retailers. When a retailer makes
an exempt sale to its customer, the purchaser is required to produce an exemption certificate.
The retailer instructs the customer to Taxpayer’s Internet portal where all the exemption
certificates for all fifty states are available. The customer chooses the exemption certificate
applicable for the state, fills out the certificate on-line, prints out the certificate, signs the
certificate and faxes the certificate to the Taxpayer fax server located in XXXXXX [another
state]. The certificate is immediately available for inspection by Taxpayer’s client in PDF format
on XXXXXXXXXX [Taxpayer’s] web site. No tangible personal property is transferred between
any parties.

XXXXXXX [Product B] is a professional service providing sales and use tax preparation.
Taxpayer’s client sends monthly sales and use tax data electronically via Taxpayer’s Internet
portal. Taxpayer feeds the provided data into the sales and use tax preparation software,
generates the paper and electronic returns, and mails or sends the returns to the respective
taxing jurisdictions. At the end of the month, an electronic copy of those returns is provided to
the client via Taxpayer’s portal. No tangible personal property is transferred between any of the
parties.
Discussion
Colorado imposes sales and use tax on the sale, use, storage and consumption of tangible
personal property. See, §§39-26-104, C.R.S. With limited exceptions, services are not subject
to these taxes. The preparation of tax returns is generally viewed as a service, even though
tangible personal property in the form of a tax return and other forms is transferred to the
client/customer. See, Special Regulation 52 (Service Enterprise).
Although Taxpayer has not requested that we review the propriety of these products, we note
that the exemption certificate process may not be sufficient in certain circumstances. For
example, a charitable organization holding an exemption certificate issued by the department
must produce to the retailer a copy of the certificate. See, e.g., FYI Sales 1. In other cases, a
form prepared by the purchaser is appropriate. For example, a purchaser of certain farm
equipment must provide an affidavit warranting that the equipment will be used for agricultural
purposes. See, Department Form 0511 and FYI Sales 75. These forms and publications are
available on our web site at: www.Colorado.gov/revenue/tax.
Miscellaneous
Pursuant to state law and department regulation 24-35-103.5, the Department will make public a
redacted version of this letter. Your letter requesting this general information letter is not made
public. I enclose a proposed redacted version of this letter. Please contact me within 60 days
from the date of this letter if you have any questions, comments, or objection concerning the
redacted letter.
We hope this general information letter is helpful. As noted earlier, you may request a private
letter ruling which will provide a determination regarding your specific circumstances.

2

Sincerely,

Office of Tax Policy
Colorado Department of Revenue

3