Tax Insight

Colorado expands sales and use tax to software downloads, apps, and remote access

Insight
5 minute read
June 15, 2026

What happened?

Colorado enacted HB26-1223 on June 4, 2026. The bill contains the safety clause, which exempts the legislation from the constitutional right of referendum. Effective January 1, 2027, the bill expands sales and use tax to computer software, regardless of method of delivery, including downloaded “apps” and software accessed remotely through the internet. Custom software remains exempt. An exemption is also provided for software governed by a negotiable license agreement.

The bill also expands and codifies the exemption for sales tax on gas and electric utilities for certain prepared food retailers. It also provides a limited sales tax deduction for certain food services and hospitality industries for specified periods in 2027 and 2028.

Why is it relevant?

Colorado now joins the majority of states that impose sales tax on sales of software regardless of delivery method. The change to include computer software regardless of method of delivery in the definition of tangible personal property expands the tax base for consumers and others operating in the state. Sellers and users of software will need to revisit their tax decisions to appropriately charge or accrue tax on software.

Actions to consider

Businesses should evaluate existing software usage, contractual language, and transaction structure to determine whether these transactions will be subject to tax.

The exemption for software governed by a negotiable license agreement will require additional clarification and could create concerns regarding documentation. License agreements should be reviewed with a focus on confirming whether they are negotiable and how that would be documented should that status be challenged.

The change also creates uncertainty for sourcing software transactions. Software downloaded as apps on cell phones and other mobile devices could pose sourcing challenges. Processes to document this information should be considered. Software accessed remotely should be reviewed to determine whether use can be identified, documented, and allocated.