Colorado Department Of Revenue To Hold Work Group On Software Sales Tax Rules

Colorado recently enacted H.B. 26-1223, which significantly expands the state’s sales and use tax base beginning Jan. 1, 2027. As we previously discussed in a GT blog post, the legislation generally treats downloaded and remotely accessed computer software, including certain software-as-a-service (SaaS) offerings and mobile applications, as tangible personal property subject to Colorado sales and use tax.

As the state begins implementing these changes, the Colorado Department of Revenue has announced that it will hold a virtual work group meeting on Aug. 6, 2026, to solicit stakeholder input before drafting administrative rules. According to the department, the session is intended to identify issues that taxpayers expect the rules to address and to help inform the department’s guidance efforts.

The rulemaking process may prove particularly important because H.B. 26-1223 broadens the scope of taxable software transactions but leaves several significant implementation questions unanswered. Most notably, the legislation does not appear to establish software-specific sourcing provisions or a multiple-points-of-use framework for software accessed by users located both inside and outside Colorado. As a result, department guidance will be critical in determining how taxpayers should source receipts from enterprise software, SaaS subscriptions, and other remotely accessed software products used across multiple jurisdictions.

Additional guidance may also be necessary to clarify the scope of key statutory exclusions, including the exemptions for custom software and software transferred pursuant to a “negotiable license agreement.” The interpretation of these provisions may have substantial implications for software vendors, SaaS providers, and purchasers evaluating the tax treatment of software agreements and subscription arrangements before the Jan. 1, 2027, effective date.

GT attorneys plan to participate in the department’s Aug. 6 work group meeting and will continue monitoring developments as the rulemaking process moves forward. Taxpayers affected by H.B. 26-1223 should closely follow the department’s guidance efforts and consider participating in the work group process or submitting comments as the department develops rules implementing the new law.