Colorado Clarifies Position on the Taxability of Digital Media & Streaming Services

Thoughtware Article Published: Feb 03, 2021
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On January 10, the Colorado Department of Revenue (CDOR) adopted final amendments to Colorado Revised Statutes (CRS) Section 39-26-102(15), which defines tangible personal property for sales and use tax purposes. The effective date of these amendments is January 30, 2021. The amendments are more specific about imposing the state’s 2.9 percent sales tax on electronic downloads and internet streaming of digital media. 

The language of CRS §39-26-102(15) had previously been vague regarding downloaded or streamed digital media. In July 2011, the CDOR addressed a taxpayer requesting guidance on the taxability of electronically delivered newspapers and magazines in General Information Letter GIL-11-014. In GIL-11-014, the CDOR took the position that newspapers and magazines “are not exempt from sales and use tax, regardless of whether they are delivered electronically.” It differentiated intangible personal property as conceptual in nature and states that “[w]hen we speak of digital goods, we are referring not to a concept but, rather, to something that exists in the physical world.” The CDOR summarized that certain digital products “have a physical existence and are no less taxable than had they been delivered in paper or celluloid form.” Thus, GIL-11-014 sought to level the playing field for sellers of tangible personal property and digital goods. Because the content and functionality of these items are the same regardless of the method delivery, they should be taxed the same.

New language added to Colorado’s tangible personal property definition is consistent with GIL-11-014 and provides legislative clarification that when selling tangible personal property, the method of delivery does not affect the taxability of the sale. It provides possible delivery methods including physical compact disc, electronic download, and internet streaming.

Further, the amended rule provides examples that liken purchasing a movie on a physical VHS tape or compact disc to purchasing and downloading a movie from the internet, purchasing access to a movie through an internet browser, or purchasing a subscription fee that allows access to stream movies from a library of digital content. In each scenario, the physical or digital media described is considered taxable tangible personal property. Given the almost complete interchangeability of the physical and electronic versions of these products, there is no justification for taxing them differently.

Finally, the amended rule also includes a true object test for bundled transactions, under which the entire purchase price is taxable “[i]f the true object of the purchase is the tangible personal property.”

Digital media sellers should be aware of the state-level effect of Colorado’s rule amendment. In addition, it is important for sellers to be aware of any Colorado localities that also are enforcing the taxability of digital goods and streaming services. 

To learn more about how Colorado’s clarified tangible personal property definition may affect the taxability of your products or services, contact your BKD Trusted Advisor™ or submit the Contact Us form below.

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