The taxable transaction occurs when the item is pulled from stock and used for marketing purposes as a demo. Use tax needs to be remitted to the City of Boulder. If this demo is sold at a later date, that would be a separate transaction, and, therefore, taxable at the sale price. A software company creates a prototype in its research and development department and sends it to a customer for testing. The customer later decides to purchase the software.
All materials used for research and development are taxable when purchased by the software company.
If Boulder sales tax was not collected, Boulder use tax must be remitted. The purchase of the software is a separate transaction and, therefore, taxable at the sales price. The same software company sells a software package to a customer on a conditional sales contract. The customer has a 90 day trial period prior to being charged for the software. The customer accepts the software and the sale is complete.