Colorado is narrowing its software exemption on January 1, 2027. House Bill 26-1223, signed June 4, 2026, repeals the downloaded software exemption, so software that is available for repeated sale or license becomes subject to sales and use tax. Only software governed by a negotiable license agreement and software developed for a particular user stay exempt. Today, Colorado generally does not tax SaaS at the state level.
This guide covers what changes, what stays exempt, and what is still unsettled. It is educational information, not tax advice. The Colorado Department of Revenue (CDOR) is writing rules to implement the bill, so confirm current guidance before you rely on this. We checked the bill summary and its Legislative Council fiscal note on October 9, 2026.
Colorado SaaS sales tax at a glance
| Question | Answer |
|---|---|
| Is SaaS taxable in Colorado? | Generally not through December 31, 2026. Most SaaS becomes taxable from January 1, 2027 |
| Law | House Bill 26-1223, "Modifying Certain Tax Expenditures," signed June 4, 2026 |
| What changes | The downloaded software exemption is repealed |
| What stays exempt | Software governed by a negotiable license agreement, and software developed for a particular user |
| Local tax | Home-rule cities set their own rules, so state and city tax can differ |
| Guidance | CDOR is holding stakeholder meetings to write implementing rules |
What is the rule today?
Colorado taxes software only when it is prepackaged on a tangible medium. The Legislative Council fiscal note for HB26-1223 lists software used over the internet without being downloaded, such as cloud computing, as exempt under current law. Downloaded software, software a vendor manually installs and custom software are also exempt today.
That is why most SaaS sellers have not collected Colorado state sales tax. See CDOR's computer software guidance for the pre-2027 rules.
What does HB26-1223 change?
The bill summary says that beginning January 1, 2027, it repeals the downloaded software exemption "so that all software that is available for repeated sale and license qualifies as tangible property and thus is subject to sales and use tax."
The fiscal note says some SaaS retailers had probably reported software exemptions under the services exemption instead, so the sales reported under the downloaded software exemption understate what becomes taxable. The repeal applies to sales, storage, use and consumption on or after January 1, 2027.
What stays exempt?
- Software developed for a particular user. Custom software built to a single customer's needs stays exempt.
- Software governed by a negotiable license agreement. The exemption turns on whether the licence terms are negotiated. CDOR's current guidance describes a "tear-open nonnegotiable license agreement" as one in a package or accepted on the screen, and says it does not include a signed written agreement between licensor and licensee. How CDOR will apply "negotiable" to SaaS contracts is a rulemaking question.
A seller whose enterprise customers sign negotiated contracts may therefore be treated differently from one that sells by credit card on a website. Wait for CDOR's rules before you assume a contract qualifies.
How is this different from California?
California's SB 122 also starts January 1, 2027, but it names SaaS directly, sets a sourcing order and has a $5 million rule that shifts reporting to very large buyers. Colorado's change works by narrowing an exemption, and it keeps a negotiable-license exemption that we did not see in SB 122. See our California SaaS sales tax guide.
What about Colorado home-rule cities?
Colorado is a home-rule state. Cities such as Denver and Boulder administer their own sales tax and have their own rules, and some already tax software. A seller can therefore face a state rule and a different city rule on the same sale. Check each city where you have customers, and see our Colorado sales tax guide for state registration and nexus.
What should a SaaS company do before January 1?
- List your products and how each is sold: self-serve click-through, negotiated contract, or custom build.
- Count your Colorado customers and note which are on negotiated agreements.
- Check your Colorado nexus status against the state's thresholds, using our Colorado sales tax guide.
- Plan billing changes so tax can be calculated by customer location, including city.
- Watch CDOR's rulemaking and stakeholder meetings for the definition of a negotiable license.
- Review customer contracts for who bears sales tax.
Kintsugi maps each product to each state's rules and tracks nexus where you sell. See Kintsugi for SaaS and how other states treat SaaS in our SaaS sales tax by state guide.
Frequently asked questions
Is SaaS taxable in Colorado?
Generally not through December 31, 2026. From January 1, 2027, HB26-1223 repeals the downloaded software exemption, which pulls software available for repeated sale or license into sales tax unless it is custom or governed by a negotiable license agreement.
When does Colorado start taxing SaaS?
January 1, 2027.
Is custom software taxable in Colorado?
No. Software developed for a particular user stays exempt.
What is a negotiable license agreement?
The exemption covers software governed by one, but CDOR has not yet published how it will define it for SaaS. Its current guidance describes nonnegotiable licences as tear-open or click-accept terms.
Does Denver tax SaaS?
Denver administers its own sales tax. Check the City and County of Denver's rules for your product, because the city and state can differ.
Do I need to register in Colorado?
If you have nexus. Check the thresholds and registration steps in our Colorado sales tax guide.
Sources
- Colorado General Assembly, HB26-1223, Modifying Certain Tax Expenditures, checked October 9, 2026.
- Colorado Legislative Council Staff, HB 26-1223 fiscal note, May 6, 2026.
- Colorado Department of Revenue, Sales and use tax topics: computer software.
- Colorado Department of Revenue, July 2026 tax policy updates.
