Colorado has issued a private letter ruling stating that sales of a backup service provided by an information technology provider are not subject to tax. The company provides support services, resells third-party software and Software as a Service (SaaS) products to its clients. The letter ruling pays special attention to the backup service that the company provides to its clients. For this service, the company backs up clients’ applications, files and systems using a combination of hardware that it owns and a web-based application. Clients do not own the hardware or software. Rather, they only subscribe to the backup service. In order to provide the backup service, the company purchases servers and physically places them at clients’ sites. In the letter ruling, the DOR examined whether the placement of the servers constitutes a taxable lease of tangible personal property to the clients. In Colorado, a transaction in which the seller provides both tangible personal property and nontaxable services or property will generally not be treated as a sale of tangible personal property if the “true object” of the transaction is the nontaxable service or property and the use of the tangible personal property is incidental. In this matter, the DOR concluded that the true object of the backup service is the sale of nontaxable computer software products and related services, not the use of the servers. As such, charges for the backup service are not subject to Colorado sales and use tax. (Private Letter Ruling 20-008, June 23, 2020, Colorado Department of Revenue)