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News & Press: Colorado Technology Industry

URGENT – Complicated New Sales Taxes Proposed for Software Industry and IT Operations in Colorado

Wednesday, December 30, 2009   (0 Comments)
Posted by: Nikki Mill
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URGENT – Complicated New Sales Taxes Proposed for Software Industry and IT Operations in Colorado

CSIA members and our important technology community,
One of the key responsibilities for CSIA is to monitor the current and future legislative and regulatory issues both within our state and local areas, as well as nationally, to protect our critical information technology industry.  The advocacy we provide oftentimes is purposely behind-the-scenes for the best effectiveness, but now we need to alert you to a very critical issue facing us in 2010. 

The Colorado Office of State Planning and Budgeting is recommending adding new sales taxes for software, and we need to convince them this would be ill-advised for the current and future economic strength of our state.  We need to make sure they know that both the software industry and technology executives who purchase software/employ professionals in Colorado need the state to remain competitive and encourage growth – not burden this critical industry – in order to help Colorado move out of its economic challenges.

We need to hear from you so we can be the collective voice on behalf of our industry to ensure we protect the interests of all of the information technology companies and professionals.  In return, we want you to be aware of the potential implications, what CSIA is doing on your behalf, and how to become engaged to help us fight this terrible potential change. 

We Need Your Involvement
Join us on Friday, January 8 from 8 am to 10 am for a member briefing from CSIA, Hein & Associates and Fairfield and Woods to hear the full details about what this proposed regulation will do to your business.  Then help CSIA represent the industry when we talk with key officials from the Department of Revenue and Policy offices and other organizations to convince them that any change to SR7 would not be prudent for either the state or our industry.  Register for this briefing >>

If you are already a member of CSIA, thank you for your support of our industry.   If your company is not yet a member, remember that if you join today, you can help us with these burdensome proposed new taxes, and also help us continue to grow the industry with all of our other initiatives.  Contact Amy Beth Andrews about joining CSIA today. 

Background - New Taxes for Software Creators as well as Software Buyers
On Friday, November 6, 2009, the Colorado Office of State Planning and Budgeting recommended revisions to Colorado tax exemptions and credits to increase the amount of taxes paid into the state of Colorado.

Among the recommendations was a proposed change in application of sales tax on the sale/purchase of software.  The proposed new tax could potentially add sales taxes to electronic downloads, IT services (SaaS type services, potentially maintenance services bundled with software updates, and implementation services not separately stated from software licenses), custom development, SaaS-sold software, maintenance agreements, and more, causing a major change in how software companies and buyers operate their business in our state.

This new tax would move Colorado down among only nine other states and the District of Columbia in terms of complex and aggressive tax environments for our industry, and immediately put our state in the bottom 10 states with the most difficult sales tax environment for software companies, employers and purchasers.

We believe this would instantly cause the information technology industry to become less competitive, and ultimately, shift jobs and business out of Colorado, creating a net loss of tax revenue for the state, while also negatively impacting our reputation as a tech-friendly state.  Not only is this ill-advised in an unsettled economy, but it instantly will place our more than 5,500 software/hardware/IT services companies into a competitive disadvantage and cause technology executives to make harder decisions about their software employees in Colorado – or doing business with Colorado IT companies.

More about the Sales Tax Changes
The current regulation was issued in 2006 by the Colorado Department of Revenue (SR-7) to clarify the application of sales tax upon the sale of software.  In general this regulation stipulated that software is only taxable when it is sold in a prepackaged format, governed by a "tear-open” license agreement, and is delivered in a tangible medium (e.g. a CD-Rom).  Prior to the issuance of this regulation, the taxation of software was encumbered by substantial confusion arising within the business community and among the state agents tasked with the enforcement of the rules.

CSIA believes SR-7 continues to be the appropriate regulation for both the state’s Department of Revenue as well as the very important software industry and software business in Colorado.  On Wednesday, December 16, 2009, CSIA’s Public Policy/Economic Development Committee unanimously passed a resolution to oppose any regulatory or legislative change to the current regulation (SR-7) because it would prohibit the growth of this very important and critical industry.  On Friday, CSIA’s Board of Directors adopted this same resolution, additionally emphasizing CSIA’s continued emphasis to grow the information technology industry and ensure the competitive advantage of our Colorado companies.  For the full details, see the Office of State Planning and Budgeting Tax Exemptions and Credits Fact Sheet and CSIA's Formal Resolution.

What This Means for Your Company – and For All Industries Who Purchase Software
At the present time, SR-7 clarifies when sales taxes are to be collected and paid for the purchases of software.  The proposed changes would add sales tax on a variety of other sales of software, including electronic downloads, maintenance agreements, IT services, Saas-delivered software and services, and more, creating a ripple effect that we believe would ultimately cause a net loss for the state’s budget.

The proposed changes are also highly complicated, requiring our companies to collect sales tax on sales transactions that have not been taxed before, adding to complex business processes.  For technology executives across all industries, this would increase the cost of doing business with Colorado software companies, questioning their decisions about locating employees in Colorado and more.

This is instead the time to continue to increase business-to-business in our state.  Four years ago we began new initiatives to increase opportunities between tech executives and IT companies in Colorado, and we are very proud that tens of millions of dollars of transactions have occurred because of the introductions with CIOs at our C-Level @ A Mile High event (and related meetings), the increased desire from CIOs of all industries to encourage more business within the community, as well as the increased recognition that our state has very advanced companies, services and professionals.

In addition to information technology companies, we also are home to hundreds of information technology divisions from across industries including aerospace, bioscience, financial services, energy, telecommunications, tourism, and more.  These major divisions are located in Colorado because of the healthy business environment, access to key talent, and concentration of information technology companies in our state.  Companies across the nation have located these important regional information technology divisions in Colorado, and CSIA has worked diligently with key economic development partners over the last five years to encourage more divisions to locate or expand here, giving Colorado another unique expansion of technology.

High-paying jobs have been a result, boosting the information technology industry’s success and contribution to our economy.  This effort has been received very well by both the users of technology as well as producers/sellers of technology to increase business efficiencies across industries.

Whether you create software, run a software company, lead an IT division, or otherwise are interested in keeping your business’ technology environment remain healthy, join us Friday, January 8, or contact Su Hawk directly.  Hear more about how this new sales tax would impact your business and join us to help keep Colorado as healthy as possible for our critical information technology industry.

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