Colorado

Understanding SaaS Taxability in Colorado

Is SaaS Taxable in Colorado?

Colorado does not tax SaaS. The state considers SaaS a non-tangible service and, therefore, not subject to sales tax. However, there is one big exception:

Home-Rule Municipalities:

Colorado’s unique tax structure includes home-rule cities—municipalities with the authority to establish their own tax regulations independent of state rules. Notably, cities like Denver, Boulder, and Colorado Springs have chosen to tax SaaS transactions. For example, Denver imposes a 4.81% tax on SaaS when the sale, storage, use, distribution, or consumption occurs within the city, regardless of the server’s location.

Determining SaaS Taxability

To assess whether your SaaS product is taxable in Colorado:

Identify Applicable Jurisdictions: Determine if your business operates within any of Colorado’s home-rule municipalities.
Review Local Tax Codes: Examine the specific tax regulations of these municipalities to ascertain if they impose sales tax on SaaS.
Stay Informed on Legislative Changes: Tax laws can evolve; regularly consult local tax authorities or professional advisors to stay updated.

Nexus Thresholds in Colorado

Establishing a tax obligation, or “nexus,” in Colorado depends on:

Physical Nexus: Having a physical presence, such as an office or employees, within the state.
Economic Nexus: Surpassing $100,000 in gross sales to Colorado customers within a calendar year.

It’s important to note that home-rule municipalities may have their own criteria for establishing nexus, which could differ from state-level standards.

Sales Tax Compliance Checklist

To ensure compliance with Colorado’s diverse tax requirements:

Register for Sales Tax Permits: Obtain necessary permits from both the state and any applicable home-rule municipalities where your business has established nexus.
Collect and Remit Sales Tax: Accurately collect the appropriate sales tax on taxable transactions and remit these funds to the respective tax authorities.
File Regular Tax Returns: Submit timely sales tax returns to both state and local authorities, adhering to their specific reporting schedules and requirements.

Examples of Taxable vs. Non-Taxable SaaS

Taxable: In Denver and other home-rule municipalities such as Boulder, Colorado Springs, Aurora, Fort Collins, and Greenwood Village, SaaS products used within these cities are subject to local sales tax. For example, Denver imposes a 4.81% tax, while Boulder applies a 3.86% tax.
Non-Taxable: In areas outside home-rule municipalities that do not impose their own SaaS taxes, such as non-home-rule areas adhering strictly to state tax codes, SaaS remains non-taxable.

Local Tax Considerations in Colorado

Given the autonomy of home-rule municipalities, tax rates and regulations can vary significantly. For instance, while Denver imposes a 4.81% tax on SaaS, other cities may have different rates or exemptions. It’s crucial to consult the specific tax codes of each municipality where your business operates.