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Colorado Issues Permanent Regulation on Sales and Use Taxation of Software


Software/Hi-Tech

The Colorado Department of Revenue has issued a permanent regulation on the sales and use taxation of software, with guidance on the de minimus rule and maintenance agreements. De minimus standardized software includes the base language used to write the software, prewritten subroutines with negligible commercial value, and prewritten subroutines that are purely incidental to the purpose of the software developed for the specific user. Standardized software is not de minimis if its purpose is to principally fulfill one or more purchaser specifications, it is identified prior to purchase in any way as being part of the software except with respect to the language software it is to be written in, or its value exceeds 25% of the value of the software designed or developed to the specifications of a specific purchaser. Standardized software does not include software that is designed or developed to the specifications of a specific user. Software designed and developed to the specifications of a specific user is not considered standardized software simply because it includes de minimis standardized software as part of its code. If a developer purchases de minimis standardized software to include in software that is designed or developed for a specific user, the developer must pay sales tax on the purchase of the standardized software.

Standardized software does not include maintenance agreements for the maintenance of standardized software. If the price of the maintenance agreement includes the price of standardized software, the agreement must contain a reasonable, separately stated charge for the software. If the value of the standardized software is less than 25% of the price of the maintenance agreement, then the agreement is not considered to include standardized software.

Colorado will recognize and tax an apportioned amount of computer software that will be used in multiple states under Multiple Point of Use (MPU). The regulation outlines how sales and use tax on MPU software is to be apportioned. (Reg. 39-26-102.13, Colorado Department of Revenue, effective March 2, 2011)

(04/13/2011)
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