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State and Local Tax (SALT) update

The costs and complexity of state and local tax (SALT) compliance have dramatically increased over the past decade. Businesses are facing added compliance requirements, growing legislative and regulatory complexity, and increasing aggressiveness by state revenue departments. The danger of overpaying or underpaying, particularly when considering the possible interest and penalties associated with these errors, is significant.

With seven experienced SALT professionals at EKS&H, we help take the complexity out of SALT issues, helping make sure your tax position is accurate and appropriate, resulting in increased cash flow, a lower effective tax rate and improved risk profile. Using a customized, proactive and strategic approach, the SALT professionals at EKS&H work closely with clients to understand their unique businesses.

This allows us to advise and assist you on the applicable SALT issues for your specific operations and to provide solutions to mitigate compliance costs and exposure. Our clients enjoy the efficiency advantage of a seamless range of tax advisory, compliance, consulting and defense services.

Boulder software, SaaS and e-data tax

Software sales, software-as-a-service (SaaS) and access to online data or information services are now subject to city sales tax in Boulder. The Colorado Court of Appeals recently upheld the city’s taxing of software downloaded electronically and access to online data services [Ball Aerospace & Technologies Corp. v. City of Boulder, No. 11CA2129 (Colo. Ct. App. 2012)].

According to the  Colorado Court  of  Appeals,  software  downloaded by  the  taxpayer  from  the  Internet,  including  new software and periodic charges for maintenance and support, was contained in “machine-readable” form on the taxpayer’s computer and thus was subject to use tax under city code, regardless of the means of conveyance or method of delivery.

Perhaps more  important,  the  Colorado Court  of  Appeals  also  held  that, “[w]hen  accessing  a commercial database, the customer is … granted a right to use the database host’s computer system and software.” In other words, when you access a database for a fee or pay for information services over the Internet, you are really using the host’s software, and such use is taxable in Boulder. Thus, if you pay for technical journal articles, conference materials, papers, market analysis, reference materials or even an online calendar, the purchase is subject to sales or use tax.

The Colorado Supreme Court declined to review the Colorado Court of Appeals’ decision. Consequently, the above ruling allows for a broad application of what is subject to tax in the city of Boulder, including software sales and purchases, SaaS, remote access to databases, and any other information service subject to a fee.

Businesses should review their sales and purchases in light of this ruling and, if applicable, start collecting sales tax or remitting use tax. Businesses with significant liabilities may wish to explore the city’s voluntary disclosure agreement program in which penalties will be waived.

For more information about this and other SALT issues, please contact Ryan Sanger or Bruce Nelson at (303) 740-9400.