Which of a software company's products and services — licenses, SaaS, support, training, hardware — are subject to Colorado sales tax?

Plain-English summary

A company asked the Department to run down a list of 12 software-related products and services and say which trigger Colorado sales tax. (The Department limited its answer to sales tax — not income or other taxes — and stressed the facts were limited.) The throughline: Colorado taxes tangible personal property, and electronically delivered software is not tangible personal property, so most of the software and services on the list are not taxable, while physical hardware is.

Item-by-item:

1. Software licenses — Sales tax applies to tangible personal property, but "[s]oftware that is delivered electronically is not tangible personal property" (§ 39-26-102(15)). Not taxable.
2. SaaS / hosting (application service provider) — "Charges for software delivered via an application service provider are not subject to sales tax."
3. Accounting services — generally not subject to sales tax.
4. Conversion services — generally not subject to sales tax.
5. Customer services (labor) — services are generally not taxable unless the retailer requires the buyer to purchase the services as part of a taxable-goods sale or the charge isn't separately stated from the taxable goods.
6. Forms / scanners / hardware sales — sales of tangible personal property are taxable; a retailer doing business in Colorado must collect and remit (§ 39-26-102(3)) — the Department didn't decide whether the company is doing business in Colorado.
7. Maintenance / support — if the software sale is taxable, maintenance/support is also taxable, unless the buyer can opt out of it and the charge is separately stated.
8. Custom programming — software isn't taxable tangible personal property "unless it is prepackaged for repeated sale or license and has a non-negotiable license."
9. On-site training / consulting — see #5 (generally not taxable).
10. On-site travel reimbursement — "[r]eimbursement of expenses is not a sale of tangible personal property." Not taxable.
11. Phone training from outside Colorado — see #5.
12. Training conference in Colorado — "No. Charges for training services are not subject to sales tax," except as in #5.

This is a General Information Letter — general guidance, not a binding determination, and the company remains responsible for determining its own tax liabilities.

What this means for you

Software vendors (SaaS, licensed, custom)

In Colorado, the dividing line is tangible vs. intangible delivery: electronically delivered software and SaaS are not taxable, but software on physical media (or otherwise meeting the TPP criteria) and all physical hardware are taxable. Custom programming is generally untaxed unless it's really a prepackaged product with a non-negotiable license. Watch your bundling: support, maintenance, and labor become taxable when they're attached to a taxable sale and are either mandatory or not separately stated — so keep them optional and separately itemized.

Buyers of software and IT services

Expect tax on hardware and on bundled support that's tied to a taxable purchase; pure services (training, consulting, accounting, conversion) and electronically delivered software/SaaS generally aren't taxed.

Accountants and tax professionals

Anchored on § 39-26-102(15) (electronically delivered software ≠ TPP) and § 39-26-104 (services generally untaxed). The recurring separability test (optional + separately stated) governs items 5 and 7; nexus question flagged but undecided (§ 39-26-102(3)). Custom-programming carve-out (prepackaged + non-negotiable license). Cf PLR 12-006 (bundled services) and GIL 16-003 (maintenance/support). Compare CO GIL 17-013 (non-customized digital reports = taxable TPP) and the bundling analysis in GIL 17-008.

Common questions

Q: Is software taxable in Colorado?
A: Electronically delivered software is not tangible personal property, so it's not subject to Colorado sales tax. Software meeting the statutory TPP criteria (e.g., prepackaged on physical media with a non-negotiable license) can be taxable.

Q: Is SaaS taxable?
A: No. Charges for software delivered via an application service provider (SaaS/hosting) are not subject to sales tax.

Q: Is hardware taxable?
A: Yes. Sales of tangible personal property — forms, scanners, and other hardware — are taxable, and a retailer doing business in Colorado must collect and remit.

Q: When is maintenance/support or labor taxable?
A: When it's tied to a taxable sale and the buyer either can't opt out or the charge isn't separately stated. Keep such services optional and separately stated to avoid tax.

Q: Is custom programming taxable?
A: Generally no — unless the software is prepackaged for repeated sale or license and has a non-negotiable license.

Q: Is this letter binding?
A: No. A General Information Letter is general guidance and is not binding on the Department; it makes no specific determination. For a binding answer, request a private letter ruling.

Q: Does this cover city sales tax?
A: No. The Department administers state and state-collected local taxes only; self-collected home-rule cities and counties set their own rules — and some tax software differently.

Citations and references

Statutes and references:
- § 39-26-104, C.R.S. (sales tax on tangible personal property; services generally untaxed)
- § 39-26-102(15), C.R.S. (tangible personal property; electronically delivered software is not TPP)
- § 39-26-102(3), C.R.S. (duty to collect/remit if doing business in Colorado)
- PLR 12-006 (services bundled with taxable tangible personal property); GIL 16-003 (maintenance/support)

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-17-012.pdf

Original ruling text

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

GIL-17-012
July 28, 2017
XXXXXX
XXXXXX
Attn: XXXXXX
XXXXXX
XXXXXX
Re: Software and Related Services
Dear XXXXXX,
You submitted on behalf of XXXXXX (collectively referred to as the “Company”) a request
for guidance relating to software and related services.
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 Rule 1 CCR 201-1,
24-35-103.5.
The Department treats this request as 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, Company can submit a request and
pay the fee in compliance with Department Rule 1 CCR 201-1, 24-35-103.5.
Issue
Does sales tax apply to the various products and services listed?
Background
Company provides the products and services set forth below.
Discussion
You ask whether any of the listed activities are a “taxable event.” Our responses below
are limited to sales taxes. We are not providing guidance here on the question of whether
the listed activities create for Company an income tax liability or any tax liability other than
sales tax. The facts provided are limited and our responses are accordingly limited. Our

responses below are only guidance and are not binding on the Department. It is
Company’s obligation to determine its tax liabilities.
1. Software licenses. Sales tax applies to sales of tangible personal property. §
39-26-104, C.R.S. Software that is delivered electronically is not tangible
personal property. See, § 39-26-102(15), C.R.S.
2. SAS / hosting services. Charges for software delivered via an application service
provider are not subject to sales tax. § 39-26-102(15), C.R.S.
3. Accounting services. Charges for accounting services are generally not subject
to sales tax. § 39-26-104, C.R.S.
4. Conversion services. Charges for conversion services are generally not subject
to sales tax. § 39-26-104, C.R.S.
5. Customer services (labor). Charges for services are generally not taxable unless
the retailer requires the buyer to purchase the services as part of the sale of
taxable tangible personal property or the charge for the service is not separately
stated on an invoice from the sale of taxable tangible personal property.1
6. Forms /scanners / hardware sales. Charges for the sale of tangible personal
property are subject to sales tax. § 39-26-104, C.R.S. A retailer who is doing
business in Colorado, must collect, report, and remit sales or retailer’s use tax.
§39-26-102(3), C.R.S. We do not determine here whether Company is doing
business in Colorado.
7. Maintenance / support. If the sale of the computer software is taxable, then
charges for the sale of maintenance and support fees are also subject to sales
tax unless the buyer has the option to not purchase the maintenance and support
as part of its purchase of the taxable software and if the charge for such service
is separately stated on an invoice.2
8. Custom programming. Software is not taxable tangible personal property unless
it is prepackaged for repeated sale or license and has a non-negotiable license.
§ 39-26-102(15), C.R.S.
9. On-site training / consulting. See response to 5.
10. On-site travel reimbursement. Reimbursement of expenses is not a sale of
tangible personal property.
11. Phone training from outside Colorado. See response to 5.
12. Training conference in Colorado. No. Charges for training services are not
subject to sales tax, except as stated in response to 5.
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 homerule 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.
1
2
2

See, e.g., Private Letter Ruling (PLR) 12-006
See, e.g., General Information Letter (GIL) 16-003
DR 4010A (06/11/14)

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

3

DR 4010A (06/11/14)