A recently enacted Colorado law (HB26-1223, the law) revises the definition of tangible personal property to include most forms of downloaded and remotely accessed computer software with limited exemptions.

Effective January 1, 2027, downloaded and remotely accessed computer software, which was previously excluded from the definition of tangible personal property, will become taxable. An exemption will apply only to computer software that is either governed by a negotiable license agreement or developed for use by a particular user.

The law defines a "negotiable license agreement" as a "written agreement or contract that is individually bargained between the licensor and licensee and that is signed in writing by authorized representatives of both the licensor and licensee prior to or contemporaneous with the licensee's access to or use of the software." Further, the law provides that the term "individually bargained between the licensor and licensee specifically excludes a standard, form, or boilerplate agreement that is offered by the licensor on a nonnegotiable or substantially nonnegotiable basis to multiple licensees, regardless of whether the agreement bears a handwritten or electronic signature, or the agreement is printed on, within, or affixed to the software packaging; embedded within the computer software itself; or presented as part of the terms and conditions of any website or application through which the software is acquired, accessed, or used."

The law also modifies various computer software related definitions, redefining computer software as "a set of coded instructions that are both designed to cause a computer or other electronic device to perform a task and are delivered by any means, including compact disc, download, or remote access through the internet." It also makes clear that computer software includes applications installed on cellular phones, tablets, or other mobile devices.

Implications

HB 26-1223 represents a significant increase in the state's sales and use tax base and largely aligns the state's treatment of downloaded and remotely accessed software with several home-rule self-collected municipalities that have already been subjecting such software to their local sales and use taxes. This conformity, however, is not absolute, as the new state-level definitions do not exactly mirror those in every home-rule jurisdiction. Accordingly, taxpayers should continue to assess whether their transactions fall within the scope of applicable local taxes on a jurisdiction-by-jurisdiction basis.

The Colorado Department of Revenue will hold a workgroup meeting on August 6, 2026 at 10:00 a.m. MDT to discuss the development of new rules in relation to this legislation.