May 23, 2016
From KPMG TaxWatch
The Colorado Department of Revenue recently addressed whether a taxpayer’s provision of paper and/or electronic billing services were subject to state sales and use tax. The taxpayer at issue provided billing services to customers in Colorado and other states. After obtaining billing data from its clients, the taxpayer processed the data using its proprietary software. The taxpayer then billed its clients’ customers by mail or by electronic means. If the customer selected paper billing, the taxpayer printed, folded, and mailed the bills to the client’s customers. The taxpayer also offered payment processing and digital storage services.
Under Colorado law, sales tax applies to sales of tangible personal property. Thus, issue before the Department was whether the taxpayer was selling tangible personal property (i.e., bills and invoices) to customers, or was providing a service with an incidental transfer of tangible personal property. Although the paper bills and electronic bills were both considered tangible personal property, the Department determined that sales tax did not apply because the “true object” of the transaction was the sale of a service. Notably, the taxpayer did more than simply print or mail bills and inserts. Rather, the taxpayer’s software was able to hold bills so that a client’s customer got one bill as opposed to several small bills. The taxpayer was also able to pull past account information and identify which customers were behind on their bills. The Department viewed this service as similar to the work of an accountant or bookkeeper and concluded that the taxpayer was providing a nontaxable service. Please contact Steve Metz at 303-382-7177 with questions on PLR 16-003.
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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.