By Jessica Kerner and Madison Barnett

Colorado determined in two private letter rulings that a number of electronic messaging services are not subject to Colorado sales or use tax as a telephone or telegraph service or any other taxable service. The Company, which is not a regulated provider of telecommunications services, provides various messaging services to businesses using the businesses’ own networks of computer servers and the Internet. The services addressed in the rulings include: integrated desktop messaging (IDM), electronic data interchange (EDI) value added network (VAN) service, broadcast fax, notifications email and production email. The Department concluded that the Company’s IDM service, an electronic fax service, is not a telephone service because it is a one-way closed communication that does not allow the party receiving the fax to respond instantly. The fax service thus falls outside of the Department’s historical interpretation of telephone service as an open communication line that allows two or more parties to communicate instantaneously in a two-way communication. The Department ruled that the broadcast fax service is also not subject to tax for the same reason. The EDI VAN service is a service that allows businesses to electronically exchange routine business documents using industry standard data formats. The Department determined that the EDI VAN service is not taxable because the true object of the transaction is for the customer to obtain the data conversion service performed by the Company’s software, which formats the communications, and that the data transmission is incidental. Finally, the Department concluded that any potential taxation of the email services, including the Company’s production messaging, is preempted by the Internet Tax Freedom Act. Colo. Dept. of Rev. PLR-15-001 (released April 5, 2015). Colo. Dept. of Rev. PLR-15-003 (Feb. 4, 2015, released April 5, 2015).