Colorado Ends Its Software Tax Break: SaaS and Downloads Taxable From 2027

Colorado has enacted one of the year’s most consequential US software-tax changes. HB 26-1223, signed by Governor Polis on 4 June 2026, repeals the functional exemption for downloaded software effective 1 January 2027 and redefines “computer software” as a set of coded instructions delivered by any means—compact disc, download, or remote access through the internet—thereby classifying it as tangible personal property subject to sales and use tax. For years Colorado taxed only prepackaged software delivered on physical media, leaving cloud, downloaded and ASP-hosted software effectively exempt after HB 11-1293; the new “remote access” language brings non-negotiated SaaS, subscriptions and mobile apps into the base. Two exemptions remain: custom software built for a particular user, and software governed by a genuinely negotiable license agreement—though standard click-through and browse-wrap terms are expressly excluded. Because Colorado’s home-rule jurisdictions may or may not adopt the state definition, sellers face added sourcing and documentation complexity and should review contracts and systems before the effective date.