Colorado Tax Exemption and Credit Proposal

The Colorado Office of State Planning and Budgeting recently proposed a number of revisions to Colorado tax exemptions and credits, in an attempt to close a projected fiscal shortfall. Among the proposals are elimination of exemptions or credits, either temporary or permanent, that would affect:

* direct mail advertising
* energy use in industrial and manufacturing sectors
* non-essential contaners for food services
* candy and soft drinks
* agricultural compounds
* pestisides
* enterprise zone investment tax credit
* alternative fuel vehicles
* gross conservation easement credit
* alternative minimum tax and alternative minimum tax credit
* software sales tax exemption
* sales taxes for online purchases
* net operating loss limitations

Regarding the software sales tax exemption, it is expected that the definition of software would be expanded. Currently, software is defined as taxable only if 1) it is packaged for repeated sale, 2) it is subject to a non-negotiable, tear open license agreement, and 3) it is delivered on a tangible medium. By definition, this would exclude software sold over the Internet or by "load and leave". Presumably, these types of software purchases would be taxable under the proposed changes.

It is expected that the corporation net operating loss limitation provisions would be revised to limit the amount of net operating losses that could be utilized to offset income for the next three years, beginning January 1, 2010, to $250,000.

These changes, if enacted, would have a significant impact on how businesses operate in Colorado.