Are annual software-update fees and software maintenance agreements taxable in Colorado when the software is delivered electronically — even if the underlying software was taxable when it was bought before July 1, 2012?
Plain-English summary
The Colorado Department of Revenue addressed a clean timing question: a company had bought software both before and after July 1, 2012, and was now paying for annual updates and maintenance contracts delivered electronically. Were those update and maintenance fees taxable?
The answer is no. Before July 1, 2012, Colorado law taxed computer software delivered electronically. A 2012 amendment flipped that: software is not tangible personal property — and so not subject to sales or use tax — if it is delivered electronically (§ 39-26-102(15)(c), C.R.S.). The Department applied that rule to the updates and maintenance: because the updates and maintenance services are themselves delivered electronically and purchased after July 1, 2012, they are not taxable.
The notable point is that the age of the underlying software doesn't matter. Even where the original software was treated as taxable tangible property when it was bought (pre-July 2012), the later electronically delivered update or maintenance contract is still non-taxable. The Department pointed to its earlier PLR 13-003 (computer software and maintenance contracts) as consistent.
What this means for you
Businesses buying software updates and support
If your software update or maintenance agreement is delivered electronically and you bought it after July 1, 2012, Colorado does not impose state sales or use tax on it. You don't have to trace back whether the original program was taxable when first installed years ago — the current electronic delivery is what controls.
Software vendors and resellers
Don't reflexively tax an update or maintenance renewal just because the original license sale was taxable. The delivery method of the current charge governs. If the update or maintenance is delivered on physical media (a disc), the analysis can differ, because that reintroduces tangible personal property.
Accountants and tax professionals
The whole result turns on § 39-26-102(15)(c): electronically delivered software is not tangible personal property in Colorado after July 1, 2012. This GIL is the Department's good-faith reading, not a binding determination — a taxpayer wanting certainty can pay the fee for a private letter ruling. Watch for physical-media delivery and for self-collected home-rule cities, which may treat software differently.
Common questions
Q: Are electronically delivered software maintenance agreements taxable in Colorado?
A: No — if delivered electronically and purchased after July 1, 2012, they are not tangible personal property and are not subject to sales or use tax.
Q: My original software was taxable when I bought it years ago. Does that make the update taxable?
A: No. The Department said the electronically delivered update or maintenance is non-taxable "even if the update or maintenance is for computer software that was treated as tangible personal property when purchased."
Q: What if the update arrives on a disc instead of by download?
A: This letter covers electronically delivered software. Software delivered on physical media is tangible personal property, so the answer can change — check the delivery method of the specific charge.
Q: Can I rely on this letter for my business?
A: Only as general guidance. A General Information Letter is not binding on the Department and makes no specific determination. For a binding answer on your facts, request a private letter ruling.
Citations and references
Statutes and rules:
- § 39-26-102(15)(c), C.R.S. (computer software delivered electronically is not tangible personal property)
Related guidance:
- Colorado PLR 13-003 (computer software and maintenance contracts) — cited by the Department as consistent
Source
- Landing page: Colorado Sales & Use Tax Letter Rulings
- Original PDF: GIL-16-002.pdf
Original ruling text
Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]
GIL-16-002
January 12, 2016
XXXXXXXXXXXXXXXXX
Attn: XXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX
Re: Annual Software Updates and Maintenance Agreements
Dear XXXXXXXXXXXX,
You submitted on behalf of your client (“Company”) a request for guidance to determine whether
annual software updates and software maintenance agreements that cover software that was
delivered electronically is subject to sales tax.
The Colorado Department of Revenue (“Department”) issues general information letters and
private letter rulings. A general information letter provides a general overview of the relevant tax
issues but is not binding on the Department. A private letter ruling provides a specific
determination for a specific set of facts, is binding on the Department but not on the taxpayer, and
requires payment of a fee. For more information about general information letters and private
letter rulings, please see Department Regulation 24-35-103.5 at www.colorado.gov/revenue/tax >
Tax Library > Rulings.
The Department treats this request as one for a general information letter. It is important to
remember that general information letters, such as this one, are general discussions of tax law and
are not binding on the Department. If Company would like the Department to issue a private letter
ruling on the issue raised here, the retailer can submit a request and fee in compliance with
Department Regulation 24-35-103.5.
Issue
1. Are current annual fees for software updates delivered electronically and current
annual maintenance agreement fees that apply to software purchased prior to July 1,
2012 subject to Colorado sales or use tax?
2. Are current annual fees for a maintenance agreement that apply to software
purchased on or after to July 1, 2012 subject to Colorado sales or use tax?
3.
Background
Prior to July 1, 2012, Colorado law taxed computer software delivered electronically to
customers. This law was amended effective July 1, 2012 and provided that computer software
was not tangible personal property (and, therefore, not subject to sales or use tax) if it was
delivered electronically.1 Company purchased computer software before and after July 1,
2012. Company also purchased computer software updates and maintenance contracts after July
1, 2012 for computer software purchased prior to July 1, 2012.
Discussion
Computer software updates and maintenance agreements purchased after July 1, 2012 that are
delivered electronically are not subject to sales tax because they are not tangible personal
property, even if the update or maintenance is for computer software that was treated as tangible
personal property when purchased.2
Miscellaneous
This letter represents the good faith opinion of Department personnel who are knowledgeable on
state taxes issues. However, the Department does not make a specific determination here on any
of the issues raised and the Department is not bound by this general information letter.
The Department administers state and state-administered local sales and use taxes. This letter
does not address sales and use taxes administered by home-rule cities and home-rule
counties. You may wish to consult with local governments which administer their own sales or use
taxes about the applicability of those taxes. Visit our web site at www.colorado.gov/tax for more
information about state and local sales taxes.
Enclosed is a redacted version of this letter. Pursuant to statute and regulation, this redacted letter
will be made public within 60 days of the date of this letter. Please let me know in writing within
that 60 day period whether you have any suggestions or concerns about this redacted letter.
Sincerely,
Office of Tax Policy
Colorado Department of Revenue
1
2
2
§ 39-26-102(15)(c), C.R.S.
See, Colorado Department of Revenue Private Letter Ruling PLR-13003. https://www.colorado.gov/pacific/sites/default/files/Computer%20Software%20and%20Maintenance
%20Contracts%20Private%20Letter%20Ruling%20PLR%2013-003_1.pdf
DR 4010A (06/11/14)