United States

Colorado clarifies treatment of downloaded software updates and agreements

TAX BLOG  | 

A May 2016 general information letter from the Colorado Department of Revenue aims to help businesses seeking guidance regarding the tax treatment of purchases of electronically downloaded software updates and software maintenance agreements.

Specifically, the letter addresses whether such purchases are subject to sales and use tax when those purchases relate to software purchased before July 1, 2012.

Prior to July 1, 2012, Colorado law specifically included electronically delivered software in the definition of tangible personal property, generally subjecting those purchases to sales and use tax. Effective July 1, 2012, the law was amended to exclude electronically delivered software from the tax by modifying the definition of tangible personal property.

In the general information letter, the department concluded that electronically delivered updates and maintenance agreements purchased after July 1, 2012, are not subject to tax, regardless of whether those purchases are for software originally taxable before July 1, 2012.

The department’s conclusion should clarify the treatment of software updates and maintenance agreements purchased after July 1, 2012. Taxpayers should also consider reviewing their purchases of software updates and long-term maintenance agreements that may relate to software originally purchased before July 1, 2012, for tax charged in error after July 1, 2012.


Steve Riddle

Principal

Steve leads the national sales and use tax practice as well as the central region SALT team. Reach him at steve.riddle@rsmus.com.

Areas of focus: State and Local TaxSales and Use Tax