The Colorado Court of Appeals issued an opinion interpreting the City of Boulder’s software definition very broadly to impose use tax on downloaded software and, even more problematically, access to an online data service. Ball Aerospace & Techs. Corp. v. City of Boulder, Docket No. 2012 COA 153 (Colo. Ct. App. Sept. 13, 2012).

The court interpreted the language “contained on other machine readable form” to encompass software that the customer downloaded via the internet. Although this interpretation may be impermissibly broad, the court’s more curious holding was that access to an online data service constituted the transfer of software. The court reasoned that by paying to access the online data service, the company purchased the right to remotely use the computer software contained on the service providers’ servers—and acquired requisite control over the software.

This case appears to fundamentally alter the jurisdiction’s sales and use tax law. Such significant change is better handled by the legislature or formal rulemaking process, where taxpayers are afforded input and notice.