Colorado 2.9% sales tax on SaaS, downloads & apps 2027

Colorado expands sales tax to SaaS, downloaded software and mobile apps, ending digital software exemptions from January 2027

Colorado has become the latest US state to expand sales tax to the digital economy, with new rules bringing Software-as-a-Service (SaaS), downloaded software and many mobile applications into the state’s sales and use tax regime from 1 January 2027. The current state-wide sales tax rate is 2.9%, but can be topped up to over 4% once local jurisdictions add their taxes. For non-resident sellers, without a local nexus, there is a sales tax threshold of US$ 100,000 per annum.

This follows California sales tax on digital services changes from January 2027.

The changes were introduced through HB 26-1223, signed by Governor Jared Polis on 4 June 2026, and significantly broaden the state’s definition of taxable computer software.

SaaS now treated as tangible personal property

Until now, Colorado generally taxed pre-packaged software supplied on physical media, while software delivered electronically or accessed remotely was largely outside the scope of state sales tax following reforms introduced in 2012.

From 2027, that distinction disappears.

The legislation defines computer software as coded instructions delivered by any means, including physical media, downloads and remote internet access. This means businesses selling:

• SaaS subscriptions;
• downloaded software;
• mobile applications; and
• other remotely accessed software

will generally be required to collect Colorado sales tax where applicable.

The move reflects a wider trend across US states to modernise sales tax rules so that cloud-based software is taxed in the same way as traditional software products.

Limited exemptions remain

Not every software transaction becomes taxable. Colorado will continue to exempt:

• custom software developed specifically for an individual customer; and
• software supplied under a genuinely negotiable licence agreement.

However, the legislation makes clear that standard online click-through or browse-wrap licence agreements do not qualify as negotiated contracts, limiting the availability of this exemption for most commercial SaaS providers.

Additional complexity from home-rule cities

Businesses should also be aware that Colorado’s numerous home-rule municipalities are not automatically required to adopt the state’s revised definition of taxable software. This means suppliers may face differing tax treatments depending on where their customers are located, adding further complexity to sales tax determination and compliance.

Companies selling software into Colorado should therefore review their product classifications, customer contracts and tax engines well before the January 2027 implementation date.

US Sales Tax rates and selling thresholds