This month, we continue our blog series with a contrast of a couple of western states – Arizona and Colorado – specifically their treatment of technology items for sales tax purposes.
Wait! Already know you need help with Arizona or Colorado issues? Please reach out to us at info@milesconsultinggroup.com
Software as a Service (SaaS) in Arizona vs. SaaS in Colorado
Software as a Service (SaaS) is subject to sales tax in several jurisdictions across the country. Approximately half of states do tax the SaaS revenue stream. As you’ll see below, these two states vary significantly regarding their treatment of sales tax for technology products.
Cloud Computing Services are subject to sales and use tax in Arizona.
Arizona imposes a transaction privilege tax (see below) on gross receipts derived from the sale of computer software programs and applications regardless of the method that a retail business uses to transfer the information to its customers. As such, companies selling a SaaS subscription based product to Arizona customers must collect tax on the transaction.
SaaS is not taxable in Colorado.
Effective July 1, 2012, computer software is not taxable when delivered through an application service provider, delivered by electronic computer software, or transferred by load and leave computer software delivery. As such the state of Colorado does not require collection of tax on SaaS subscription based products. However, it is important to note that SaaS is taxable in the cities of Denver, Colorado Springs, Boulder and some of the other larger jurisdictions in the state. (Colorado has adopted an interesting (and also confusing) system by which municipalities can adopt “home rule” status and essentially administer their own tax rules, which may differ from the state – as in the case of SaaS.)
Software in Arizona vs. Software in Colorado
Arizona does impose sales and use tax on prewritten computer software sold electronically.
Canned computer software delivered electronically is subject to Arizona’s transaction privilege tax under the retail classification and to the corresponding use tax.
Prewritten computer software delivered electronically is not subject to tax in Colorado.
The sale of custom computer software delivered electronically is not subject to tax in Arizona.
The sale of custom software delivered electronically is considered a nontaxable service and therefore not taxable.
The sale of custom computer software delivered electronically is not subject to tax in Colorado.
Custom software delivered electronically is exempt from tax.
Digital Goods
States vary in their treatment of electronically delivered goods including e-books, music, and streaming video. Some states consider all of these types of products to be taxable or not, while others call out specific taxability depending upon the product.
In Arizona, digital products are taxable.
Gross receipts from sales of digital products that are delivered electronically are subject to tax under the retail classification in Arizona.
In Colorado, digital products are also taxable.
Effective July 1, 2021, Colorado specifically includes digital goods in its statutory definition of “tangible personal property.” Prior to this amendment, however, digital goods were not specifically excluded from the statutory definition, and the method of delivery did not impact the taxability of tangible personal property.
Sales Tax Holidays
States often offer sales tax holidays during specific times of the year, during which certain items are sold tax free. Items often include clothing, school supplies and computers, and often coincide with the “back to school” months of the year. These holidays vary greatly by state. However, neither Arizona nor Colorado offers specific sales tax holidays.
For more information on sales tax holidays, click here.
Special Notes
Although commonly referred to as a sales tax, the Arizona transaction privilege tax (TPT) is actually a tax on a vendor for the privilege of doing business in the state. Various business activities are subject to transaction privilege tax and must be licensed. For more information on the TPT, click here.
Economy
Early in its history, Arizona’s economy relied largely on the “five C’s:” copper, cotton, cattle, citrus, and climate (tourism). Copper is still extensively mined from many expansive open-pit and underground mines, accounting for two-thirds of the nation’s output.
Today, the composition of the state’s economy is moderately diverse; although health care, transportation and the government remain the largest sectors.
Arizona’s agricultural output is pretty evenly distributed between crops and livestock. About 47% of Arizona’s agricultural production is in livestock. The other 53% is in crops. In terms of revenue generated, Arizona’s top five agricultural products are cattle and calves, lettuce, dairy products, cotton and hay.
Colorado is considered the 8th largest state area wise and has a very diverse geography. From the Colorado Eastern Plains to the Rocky Mountains, the state takes full advantage of the land and much of it is favored towards the agriculture industry. In fact, over 60% of Colorado’s land is used for agriculture. Livestock is one area of agriculture that has done especially well. Colorado has over 15,000 beef producers, 200 feedlots, and 20 USDA certified slaughter plants. Beef is the number one agricultural commodity from the state. In addition to livestock, the state is also the nation’s leader in producing beer, with nearly 150 breweries. Denver, Colorado is known as the “Napa Valley of Beer.”
The extensive geography plays in the state’s favor also for tourism. Colorado is considered the “Switzerland of America,” because of its collection of mountains that are ideal for winter sports. These mountains attract millions of tourists to flock to ski resorts and has contributed in making Colorado #1 in the nation for overnight ski visits. Asides from the winter attractions, Colorado’s outdoors is just as enjoyable in all the other seasons.
Arizona Fun Facts:
- Arizona leads the nation in copper production.
- Oraibi is the oldest Indian settlement in the United States. The Hopis Indians founded it.
- The famous labor leader, Cesar Estrada Chavez, was born in Yuma.
- The world’s largest solar telescope is located at Kitts Peak National Laboratory in the city of Sells.
- The age of a saguaro cactus is determined by its height.
Colorado Fun Facts:
- The 13th step of the state capital in Denver is exactly 1 mile above sea level.
- Colorado was nicknamed The Centennial State because it became a state 100 years after the US Declaration of Independence (1776).
- In Denver, Colfax Avenue is considered the longest continuous street in America, running 53.3 miles.
- Colorado has the highest mean altitude (6,800 feet) of all the states.
- Katherine Lee Bates wrote “America the Beautiful” after being inspired by the views from Pikes Peak.
- Colorado is the only state in history to turn down the Olympics. Denver could have hosted the event in 1976, but state voters voted against it.
We invite you to further explore Arizona and Colorado in these earlier blogs we crafted over the years. For Colorado, click here. For Arizona, click here. Our team at Miles Consulting Group is always available to discuss the specifics of your situation, whether in Arizona, Colorado, or other U.S. States, and help you navigate the complex tax structures arising from multistate operations. Call us to help you achieve the best tax efficiencies.
