I spoke at the City Council meeting last night and this is the follow-up email I just sent to the City Council.
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Thank you for your time tonight. Here's the email KC requested. (I thought of emailing first but think this is important enough that I should have spoken first.)
We sell our software worldwide and our customers include a large number of very large companies. These companies all have a footprint in Boulder. And in many cases, they way they use our software, some of the people using the system that our software has been incorporated into may work in Boulder.
Let me give you a specific example. We have sold our software to a project team at Roche in Poland. They incorporate our software into a system they have that they then push up to a server. The group in Poland has no idea if the factory in Boulder is one of the users of the program. And they have no way to find out. And if they could find out, the answer would almost certainly be 0 or a very small percentage.
I have been working to determine when we owe sales tax and have received the following two answers from James Anderson (who by the way has been very fast to respond).
Q: We have a customer that has a large presence in Boulder. We sold to a group in New Jersey, to be used in Poland, and paid for out of Chicago. But the Boulder facility may (they aren't sure) use the system with our software, but probably running on servers in New Jersey.
A: Same as #7 [see attachment] above. A delivery or download address must be established to determine where taxation should occur. If it is not clear, Boulder would tax the use of the software here unless proof could be provided that a legally imposed tax was charged and paid somewhere else.
Here's my concern, the fact that the software may be used in Boulder, when clearly the vast majority of usage is elsewhere, is sufficient in James' opinion to require Roche to perform an audit of world-wide use. The software was clearly delivered to a location outside of Boulder (Poland). Its initial use was outside of Boulder (Poland). It is running on servers outside of Boulder (New Jersey). The vast majority of use, possibly 100%, is outside of Boulder. Yet because my company is in Boulder and our customer has a footprint in Boulder, they could be required to perform an audit – which would be expensive and a PITA for them.
If Boulder actively takes this approach it will force software companies out of the city. Companies will not buy where they are required to then audit usage patterns to pay local sales tax. Our software is much more efficient than our competitors – but it's not that much better to be worth expensive and time consuming usage audits.
And Boulder will not get any real revenue from this because the total amount will initially be small and will quickly go to zero as companies leave town (or go bankrupt). I don't want to move my company out of Boulder. (In fact, our plan was, in 18 months when our present lease ends, to move to office space on the Pearl St. Mall.)
I suggest you establish a policy/rule that software that is delivered and first used outside the City of Boulder will not be subject to sales tax – even if no tax was paid at that location. And stress that software systems set up for use across a region where use in Boulder is clearly under 10% of the total is not subject to tax.
I am happy to answer any questions.
Thanks – dave
Ps An additional issue you face here is that software, unlike a physical good, does not reside at a single specific location in many uses. Nor is it clear in some cases where the "program" is running as it can be spread across multiple servers in multiple locations with part of the computation then occurring on the end user's system.
