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TR 25: Licenses & Royalty Agreements

Licenses and royalty agreements to use tangible personal property or taxable services are subject to sales tax in the City of Boulder (paragraph 3-1-1, "Purchase" or "sale", (2), BRC, 1981). This includes, but is not limited to, software, prerecorded music, artwork and dies. This does not include licenses and royalty agreements for technology or manufacturing processes, the use of the written word or song lyrics.

The transfer to a publisher of an original manuscript by the author thereof for the purpose of publication is not subject to taxation, since the true object of the transaction is to provide the publisher with the author's words, which are intangible personal property and could be written on any medium. However, the tax would apply to the sale of mere copies of an author's works or the sale of manuscripts written by other authors where the manuscript itself is of particular value as an item of tangible personal property and the purchaser's primary interest is in the physical property. Tax would also apply to the sale of artistic expressions in the form of paintings, photographs and sculptures, even though the work of art may express an original idea, since the purchaser desires the tangible object itself; that is, since the true object of the contract is the work of art in its physical form.


  1. A photographer sells royalty agreements to advertising companies that allow them the use of his photographs for advertising purposes. The sale of the royalty agreements are subject to Boulder sales tax.
  2. A manufacturing company pays a license fee to a software manufacturer for the right to use its software. This license is subject to the City of Boulder's sales tax. The same company pays a royalty to a limited liability corporation that owns a manufacturing process patent that is used in the company's manufacturing line. This is not a taxable transaction because the royalty is for the use of a manufacturing process.