Colorado has enacted House Bill 26-1223 (HB 26-1223), significantly expanding the state's sales and use tax treatment of software. Effective January 1, 2027, Colorado will expand taxation to include electronically delivered software, Software-as-a-Service (SaaS), and other remotely accessed software.

This change will impact businesses that sell, license, or purchase software and may create additional sales and use tax compliance obligations.

What Software Will Be Taxable?

Beginning January 1, 2027, Colorado sales and use tax will generally apply to prewritten software available for repeated sale or license, regardless of the method of delivery or access. Taxable software will include:

• Software delivered on tangible media
• Electronically downloaded or delivered software
• SaaS and cloud-based software subscriptions
• Software hosted by application service providers (ASPs)
• Mobile applications and similar software products

Under the expanded definition, computer software includes coded instructions delivered or accessed by any means, including remotely over the internet. Qualifying prewritten software will generally be treated as tangible personal property for Colorado sales and use tax purposes.

What Software Remains Exempt?

Certain software transactions will continue to qualify for exemption, including:

• Custom software developed for a specific customer
• Software licensed under negotiated agreements
• Separately contracted custom software modifications

Importantly, standard click-through, browse-wrap, shrink-wrap, and other nonnegotiable licensing agreements generally will not qualify for the negotiated license agreement exemption. Businesses should review their software contracts to determine whether an exemption may apply.

Key Considerations for Businesses

While the legislation brings Colorado's state-level treatment of software and SaaS more closely in line with many of its home rule jurisdictions, differences in local tax rules may continue to create compliance challenges.

Notably, the legislation does not establish a multiple points of use (MPU) provision, despite similar methodologies being available in certain local jurisdictions. This may create uncertainty for businesses purchasing software used by employees or operations located both within and outside Colorado.

Businesses should consider taking the following steps before January 1, 2027:

• Review software purchases and sales: Identify software products and subscriptions that may become taxable under the expanded rules.
• Evaluate licensing agreements: Determine whether existing contracts qualify for an available exemption.
• Assess multistate software usage: Review how software is accessed and used across jurisdictions and evaluate potential sourcing and use tax implications.
• Prepare for compliance changes: Update tax calculation systems, billing processes, and purchasing procedures as needed.
• Monitor additional guidance: Stay informed of further clarification from the Colorado Department of Revenue regarding implementation and administration.

How RubinBrown Can Help

RubinBrown's State and Local Tax Services team can assist businesses in evaluating the impact of these changes, reviewing software agreements and multistate usage, assessing sales and use tax obligations, and identifying opportunities to minimize unintended tax exposure before or following the January 1, 2027 effective date.

Published: 11/12/2026

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