As promised on the Legal Solutions for Small Business Fanpage on Facebook yesterday, today we are talking about HB1192.

For companies and individuals whose income depends on software downloads or affiliate marketing, the talk recently has been on Colorado House Bill 1192 – a bill “concerning that state sales and use tax of standardized software.”  This bill repeals a regulation of the Department of Revenue related to the type of software that is currently taxable.  Currently, under Special Regulation 7, software must be in a tangible form to be taxed.  SR-7 specifically states “Software is not delivered to the customer in a tangible medium if it is provided through an application service provider, delivered by electronic software delivery, or transferred by load and leave software delivery.”  Due to this, in most cases if software is downloaded from the internet, the State of Colorado does not get any sales tax.

So what does this bill do?  It adds the language that tangible personal property (aka property that is taxed) will included standardized software (aka software that is created for more than one person/company to use) that is downloaded from the internet or delivered to person by some non-physical means (aka some means where you don’t actually get a CD with the software on it).  This means that every time someone in Colorado downloads something from the Internet, a tax should be levied on that purchase.

How does this affect Colorado businesses?  Well, if you are based in Colorado, it makes it where the State has a much easier time collecting the tax from your company.  Any company based in Colorado will be expected to account for, and pay, taxes on all software downloaded by Colorado residents.  This creates an accounting nightmare for companies who, if this bill passes, will need to determine what state every person who downloads their software lives in and then remit sales tax on these purchases.

While I understand that Colorado is facing a budget deficit, it does not make sense to pass a bill that will make if more difficult for companies to move or startup here.  When we as a state are supposedly trying to attract technology companies, any move to make doing business more difficult for them does not make sense.  Companies bring with them much more than just the tax dollars they generate on their products.  Companies bring tax dollars on the wages their employees eventually spend, tax dollars on the goods the company purchases, and foster an environment that makes more companies want to move to a state.

Later this week, I will post more on this bill and how it will affect affiliate marketers.  In the meantime, I suggest all my readers investigate this bill further and post comments on what they think about the bill.

As always, if you are a small business with questions about whether you are doing business correctly, you can reach me at 720-258-6647 or elizabeth.lewis@eclewis.com.