United States

Electronic messaging services not subject to Colorado SUT


On April 5, 2015, the Colorado Department of Revenue released PLR-15-001, finding that a company's sales of integrated desktop messaging (IDM), electronic data interchange value added network (EDI VAN), broadcast fax, and production email services are not subject to Colorado's sales and use tax (SUT).

The company in question is a provider of computer-based electronic messaging services to business enterprises utilizing the computing infrastructure provided by their customers and the Internet. The services provided by the company are described as follows:

  • IDM service replaces customers' fax infrastructure by enabling businesses to send and receive facsimile documents in digital form, directly to or from their desktop computer applications, utilizing email and electronic mailboxes
  • EDI VAN service enables businesses to electronically exchange routine business documents utilizing industry standard data formats, and to store such documents in virtual mailboxes
  • Broadcast fax service automates the creation and distribution of high-volume fax-based messages, and allows customers to create, send and track facsimiles via a web-based portal
  • Production email service enables customers to automate the creation, delivery and tracking of high volumes of outbound electronic messages that require customization for each recipient

The company submitted a private letter ruling request to the department asking whether its sales of these services are subject to Colorado SUT as a "telephone and telegraph service" or other type of taxable service under Colorado's taxing statutes.

The department issued the following determinations:

  • IDM and Broadcast Fax: Colorado specifically subjects sales of "telephone" and "telegraph" services to tax under Colorado revised statute 39-26-104. Telephone service for this purpose is the provision of an open communication line and any related services to two or more parties to communicate instantaneously in a two-way or multi-channel communication. Telegraph service for this purpose is the provision of a system for electronically transmitting messages over a distance by creating signals by making and breaking an electrical connection. IDM and broadcast fax, as replacements for traditional fax services, meet neither of these definitions because (1) they allow only one-way, closed communications, and (2) the true object of sending a fax is the transmission of an image and the fax, itself, is not a text message that can be reconstituted into text. Accordingly, the department found that the company's sales of IDM and broadcast fax to Colorado customers are not subject to SUT.
  • EDI VAN: EDI VAN is used to access the company's proprietary software to format communications accordingly, and any transmission of those communications is incidental to the entire service. Therefore, the true object of the transaction is the data conversion service, which is not a service subject to SUT. However, the company is the consumer of any telephone and telegraph services it uses in the provision of EDI VAN, and is required to pay tax on such purchases.
  • Production Email: While the company's production email service could fall within the purview of telegraph services, the Internet Tax Freedom Act prevents state taxation of email services.

Providers of similar services to Colorado customers should consider the implications of this ruling when determining whether to collect and remit Colorado SUT. Colorado purchases of these types of services that paid tax may be able to obtain a refund.


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