Friday, March 19, 2010

Colorado Furor Over Internet Software Tax Bill

The Colorado legislature has many high technology companies and consumers up in arms over the passage of HB 10-1192, which in effect imposes a sales and use tax on downloaded software in the state of Colorado. This may have some impact on Colorado companies that sell healthcare software over the internet to consumers in Colorado.

The bill taxes downloads of "standardized software," which the bill defines as "computer software, including prewritten upgrades, that is not designed or developed to the specifications of a specific purchaser: or Computer software designed and developed to the specifications of a specific purchaser but then sold to another purchaser."

The legislation has been met with load outcries of alarm from the Colorado technology community and those actively engaged in economic development in the state. The original bill has been modified with an expansive legislative declaration that the bill is 'not intended to alter, other than the designation of standardized software as tangible personal property, the tax treatment of what is known in the industry as "digital goods", "application service providers", software as a service" or "cloud computing"'.

This bill was designed to reach the "Turbo Tax" crowd. The idea is to eliminate the perceived inequality in tax application when software is sold in shops from where it is sold over the internet and downloaded. It is one of a series of bills where the legislature is reaching to tax on line product sales. Although the bill is self described as the repeal of an "exemption" in truth there was no "exemption." There was no tax in the past because the tax is on "tangible personal property" and software is an intangible, except when it sold on DVD. The legislative solution is to change the definition of "tangible" to include what is "intangible." Just redefine "white" as "black." Problem solved. "Down" is the new "up." Is this a wonderful country or what? This may be an example of that wonderful definition of statutory law as "common sense as amended by the legislature.

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