Table of Contents

  1. Basis and Purpose
Abandoned cabin near Mount Princeton in Colorado.

Colorado Adopts Digital Goods Rule – Clarifies treatment of digital goods as tangible personal property

Published: December 11th, 2020

Sales Tax Colorado, LLC summary: Movie streaming subscriptions and other digital products are treated as tangible personal property and are taxable.

The Colorado Department of Revenue, Division of Taxation, has adopted the Digital Goods Rule based on the hearing held on June 30,2020. Additionally, the Department held a workgroup on March 4, 2020.

Rule 39-26-102(15). Tangible Personal Property.

Basis and Purpose

The purpose of this rule is to provide clarification on the definition of tangible personal property.

  1. Tangible personal property embraces all goods, wares, merchandise, products and commodities, and all tangible or corporeal things and substances which are dealt in, capable of being possessed and exchanged, except newspapers excluded by law.
  2. Tangible personal property does not include:
    • (a) Real property, such as land and buildings, nor tangible personal property that loses its identity when it becomes an integral and inseparable part of the realty, and is removable only with substantial damage to the premises. Property severed from real estate becomes tangible personal property.
    • (b) Intangible personal property constituting mere rights of action and having no intrinsic value, such as contracts, deeds, mortgages, stocks, bonds, certificates of deposit or membership, or uncancelled U.S. postage or revenue stamps sold for postage or revenue purposes.
    • (c) Water in pipes, conduits, ditches or reservoirs, but does include water in bottles, wagons, tanks or other containers.
    • (d) Computer software that does not meet the criteria enumerated in section 39-26-102(15)(c).
  3. An advertising supplement included in a newspaper is considered part of the newspaper and is exempt. See Special Rule 32, Newspapers, Magazines and Other Publications.
  4. The method of delivery does not impact the taxability of a sale of tangible personal property. Examples include, but are not limited to:
    • Example 1: Purchaser buys a movie on a VHS tape. Sales tax is due on the purchase price.
    • Example 2: Purchaser buys a movie on a compact disc. Sales tax is due on the purchase price.
    • Example 3: Purchaser buys a movie through the internet and downloads it. Sales tax is due on the purchase price.
    • Example 4: Purchaser accesses a movie via an internet browser without saving a copy. Sales tax is due on the purchase price.
    • Example 5: Purchaser pays a monthly subscription fee to stream movies/TV shows. Sales tax is due on the monthly fee.
  5. Whether a purchase that includes tangible personal property and services is subject to tax is determined by application of the true object test. If the true object of the purchase is the tangible personal property, then sales tax is due on the purchase price.