Are non-customized digital market reports subject to Colorado sales tax as tangible personal property?

Plain-English summary

A company gathers data from government entities and sells it as digital reports, delivered electronically and downloaded by customers; the data is not customized for particular customers. It asked whether charging for this digital information is subject to Colorado sales tax. The Department's answer: it likely is, because these are sales of tangible personal property, not a nontaxable service.

Two steps in the reasoning:

1. Digital goods are tangible personal property. Colorado has previously said that "the sale of digital goods, such as music, books, movies, and photographs, are tangible personal property because these goods are not merely conceptual but have a physical existence that can be measured and physically manipulated."
2. Non-customized reports are goods, not services. "[T]he sale of market reports … are not the sale of a service if the report is not customized for a particular customer." The Department's own example: "the sale of a market report of car sales is not the sale of a service if the report is made available for general consumption; but a market report of car sales prepared for a particular buyer is treated as a service."

Because this company's digital reports are standardized (not customized), the Department "will likely treat the sale … as tangible personal property and not the sale of a service" — i.e., taxable. The customization is the dividing line: standardized = taxable goods; bespoke-for-one-buyer = nontaxable service.

This is a General Information Letter — general guidance, not a binding determination.

What this means for you

Sellers of data, reports, and digital information

If you sell a standardized report or dataset to many customers, Colorado is likely to treat it as a taxable digital good — even though it's "just information" delivered electronically. If instead you prepare a report specifically for one customer's request, that's more likely a nontaxable service. The structure of your product (off-the-shelf vs. bespoke) drives the tax result, so it's worth being deliberate about how you package and describe what you sell.

Buyers of market reports and data subscriptions

Expect Colorado state sales tax on standardized digital reports. Custom research engagements prepared for you specifically are treated differently (as a service).

Accountants and tax professionals

This applies Colorado's treatment of digital goods as TPP (physical existence that can be measured/manipulated) and the customized-vs-standardized service test to data products. The holding is "likely" treatment, not a determination. Note the contrast with electronically delivered software, which Colorado does not treat as TPP (see CO GIL 17-012) — digital reports/data are analyzed under the digital-goods line, not the software rule.

Common questions

Q: Are digital reports taxable in Colorado?
A: Standardized digital reports sold for general consumption are likely taxable as tangible personal property. The Department treats digital goods (music, books, movies, photos, and similar) as TPP.

Q: What makes a report a nontaxable service instead?
A: Customization. A report prepared specifically for a particular buyer is treated as a service; one made available to customers generally is treated as taxable goods.

Q: It's delivered electronically — doesn't that make it nontaxable?
A: Not for digital goods like reports. Colorado treats such digital goods as having a physical existence that can be measured and manipulated, so electronic delivery alone doesn't make them nontaxable. (Electronically delivered software is treated differently — see GIL 17-012.)

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 and says the Department "will likely" treat the reports as TPP.

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.

Citations and references

Statutes:
- § 39-26-104, C.R.S. (imposition of sales tax on tangible personal property; digital goods treated as TPP; non-customized market reports are sales of goods, not services)

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-17-013.pdf

Original ruling text

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

GIL-17-013
July 31, 2017
XXXXXX
XXXXXX
XXXXXX
Re: Market Reports
Dear XXXXXX,
You submitted a request for guidance on behalf of XXXXXX (“Company”)
regarding the application of sales tax to charges for digital reports.
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
Is the charge for digital information subject to sales tax?
Background
Taxpayer is engaged in the business of collecting and selling information in an
electronic format to customers. The data is gathered from government entities
and sold to customers. The data is sent electronically and downloaded by the
customer. The data is not customized for particular customers.
Discussion
Colorado levies sales tax on the sale of tangible personal property. Tangible
personal property is property that has a physical existence, in contrast to
intangible property which is merely conceptual in nature.

The Department has previously given guidance that the sale of digital goods, such
as music, books, movies, and photographs, are tangible personal property
because these goods are not merely conceptual but have a physical existence
that can be measured and physically manipulated.
This request raises the question of whether taxpayer is selling a service or
tangible personal property. The Department has previously given guidance that
the sale of market reports, such as those described here, are not the sale of a
service if the report is not customized for a particular customer. For example, the
sale of a market report of car sales is not the sale of a service if the report is made
available for general consumption; but a market report of car sales prepared for a
particular buyer is treated as a service.
Based on the information provided, the sale of the Company’s digital reports are
the sale of tangible personal property. Therefore, the Department will likely treat
the sale of Company’s digital reports as tangible personal property and not the
sale of a service.
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

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DR 4010A (06/11/14)