June 13, 2024

Is Denver’s Sales Tax on Web Development Causing it to Miss Out on Valuable Startups?

2 min read

?????????????????????????????????????????Could Denver’s sales tax for mobile app and web development be hurting its potential to attract new businesses? Considering what recently happened with TalentRiot, this might indeed be the case.

TalentRiot’s CEO and founder, Fernando Cardenas, was planning on relocating his startup’s headquarters to the city. The company employs 16 people and plans to hire about 10 more before the end of the year. Had they moved to Denver, the company would have brought both an important technological presence to the business community, as well as valuable job openings and city revenues.

Instead, Cardenas did a double-take when he heard about Denver’s 3.62% sales tax on mobile app and web development. Tech cities like San Francisco and San Jose, comparatively, don’t charge sales tax on software development, and instead consider it tax exempt. In response to complaints about the tax, Denver conducted a study of how other cities handled it last year, but did not choose to retract the tax.

“We’re putting the brakes on this, and we’re going to start looking at space in Boulder,” said Cardenas in an interview last week. “We’re really just shocked to find out about (the tax) … It is a substantial amount for young companies wanting to start up, because it’s right off the top on revenue.” It’s worth pointing out that about 37% of tech startups fail by their fourth year — so businesses are going to look for cities with the lowest possible overhead costs. Denver, for its part, says the tax stems from a broadly written 1987 tax code that deals with “data processing programs.”

It seems to be an off-balance decision for a city like Denver that is trying to attract young startups to the area — not scare them away. Software executives in the industry explain that, logically, the tax doesn’t make sense — professional services that are billed by the hour and provided by lawyers and doctors, for example, are not subject to a sales tax the way web development is. For now, though, Denver is sticking with the tax — along with its potential consequences for business development.

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