If you sell software, an app, or a subscription service to customers in Colorado, a change is coming that will affect how you price, bill, and collect tax. Colorado just repealed an exemption that’s kept most downloaded and cloud based software outside the sales tax base for years. Starting January 1, 2027, nearly all software available for sale or license becomes taxable, no matter how it’s delivered.
This touches a lot of ground: SaaS platforms, mobile apps, and remotely hosted tools your customers rely on every day. If you sell software to Colorado customers, or you’re not sure whether tax was handled correctly on software you’ve purchased, now is the time to prepare.
Here’s what changed, who it affects, and what to check before the new rule kicks in.
What Is Colorado House Bill 26-1223?
Colorado’s governor signed House Bill 26-1223 into law on June 4, 2026. Under the state’s prior rules, software was generally only taxed when it arrived on a physical disc or drive, which left downloaded programs and cloud-based tools out of the state’s sales tax base. That’s no longer the case.
Beginning January 1, 2027, the definition of taxable property in Colorado expands to include computer software delivered by any means. According to the bill summary published by the Colorado General Assembly, the downloaded software exemption is repealed so that all software available for repeated sale and license qualifies as tangible property and becomes subject to sales and use tax. Specifically, that includes:
- Software subscriptions and SaaS platforms
- Mobile apps and downloaded programs
- Remotely accessed and cloud hosted tools
- Charges tied to renewals, updates, and upgrades
Is SaaS Taxable in Colorado?
The bill doesn’t use the term SaaS by name. Instead, it expands the definition of taxable computer software to include delivery by any means, including remote access through the internet. Early guidance and fiscal estimates point to that language as the reason standard, non-negotiated SaaS is expected to fall under the new tax starting January 1, 2027.
The law keeps two separate paths open for exemption. The first covers software built specifically for one user, developed one on one rather than sold or licensed to the public. The second covers software transferred under a negotiable license agreement, meaning the pricing or terms were individually bargained and signed by both parties rather than accepted through a standard agreement. A customer clicking a box to accept standard terms of service doesn’t meet that bar.
So, if your business licenses standard software, sells app subscriptions, or resells SaaS to Colorado customers, you’ll want to plan for the new tax. A closer look at how Colorado treats downloaded software and SaaS can help clarify where your specific products land. If your software is custom built for one client, or sold under an individually negotiated license, you likely stay in exempt territory, but it’s worth confirming the details with your tax advisor before you count on it.
Who Has to Charge Sales Tax on Software in Colorado?
This law reaches further than most people expect. It applies to:
- Colorado-based software and app companies selling to in-state customers
- Out-of-state software and SaaS companies selling to Colorado customers
- Businesses that buy software and haven’t been self-assessing use tax on it
- Multi-location or multi-entity businesses with offices or customers in several Colorado cities
- If your business falls into any of these groups, now is the time to start reviewing how the new tax affects you.
Do Colorado Cities Tax Software Differently?
Colorado runs on a two-tier tax system. Alongside the state’s rules, home rule cities and counties can decide on their own whether to adopt the new software definition. Some cities, Denver among them, have taxed SaaS and software for years already, regardless of how it’s delivered. That means a multi-location business could see different tax treatment from one city to the next, even after the state law takes hold. Mapping out where your offices and customers sit, city by city, matters just as much as understanding the state change.
What Should You Check Before the New Software Tax Starts?
Here’s a good starting checklist to work through with your team:
- Gather your contracts: Pull together every software and SaaS agreement you sell or resell to Colorado customers.
- Sort your software: Separate custom or negotiated agreements from standard software products that will now be taxed.
- Check local rules: Look up whether your Colorado city or county has already adopted its own software tax rule.
- Update your billing: Confirm your billing system can add sales tax to software charges starting in 2027.
- Review past purchases: Check whether you owe use tax on software you bought previously without paying tax on it.
How Can You Prepare for Colorado’s New Software Tax?
Tax law changes like this one land differently depending on your business, your customers, and where you operate in Colorado. The state’s own fiscal note on this bill points to just how broad the shift is. Our team is glad to sit down with you and work through what applies to your situation, well before the new tax takes effect.
If you sell software, apps, or SaaS into Colorado, or you’re not sure whether your business owes use tax on the software you already use, reach out to MBE CPAs. We’re here to work through it with you, one contract and one question at a time.