Oct 24, 2016
From KPMG TaxWatch
The Colorado Department of Revenue recently issued a General Information Letter addressing whether a company’s so-called management fee was subject to sales tax. The taxpayer provided repair and maintenance services for clients that owned large fleets of motor vehicles. As part of its services, the taxpayer maintained a database with details of all maintenance performed on the client’s vehicles. Clients were charged a “management fee” for access to the database, which was separately-stated on client invoices.
Under Colorado law, computer software made available to consumers by an application service provider (ASP) is not tangible personal property and, therefore, charges for access are not subject to sales tax. However, if the sale of a nontaxable service is inseparable from the sale of a taxable service, i.e., the buyer is required to buy the nontaxable service as part of its purchase of taxable goods, then the charges for nontaxable services are included in the sales tax base. The Department concluded that if the taxpayer’s clients were required to purchase the management service when purchasing repair and maintenance services, then the management fee was included in the calculation of sales tax. This was the result even if the management fee was separately stated on the invoice. Please contact Steve Metz at 303-382-7177 with questions on this General Information Letter.
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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.