Is the cloud subject to sales tax? Depends on the state

Dive Brief:

  • Several states are struggling to determine the best way to manage cloud computing transactions for sales and use tax purposes, according to Bloomberg BNA Tax Management Weekly State Tax Report.
  • States' classifications and sourcing of cloud transactions are rarely consistent, and this "introduces significant risk to business taxpayers," according to Bloomberg. "Cloud computing controversies can turn on how a cloud transaction is classified and how authority to tax the transaction is determined."
  • For example, while the Chicago Department of Finance considers Software as a Service (SaaS) to be taxable, Vermont determined that charges for access to prewritten computer software over the cloud are generally not taxable.

Dive Insight:

Some states classify SaaS as tangible personal property, generally making it taxable. Other states consider remotely accessed software to be a service, making it non-taxable.

But lack of consistency in tax codes makes it difficult for companies who do business in the cloud across state lines. 

BNA suggests taxpayers manage the risk by getting to know the rules in their state.

"If using cloud, taxpayers should have some degree of certainty regarding whether and in which jurisdiction a particular cloud transaction is taxable, for both tax purposes and for financial reporting purposes," according to BNA.

Filed Under: Cloud Computing Infrastructure
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