States' Extra-Statutory Attempts to Impose Sales Tax on Online Services Raise Questions of Fairness, Flouting of Legal Authority

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

If it looks like a service, walks like a service, and quacks like a service, but a state's department of revenue treats it as a taxable license to use pre-written computer software, then it is probably cloud computing, one of the fastest growing areas of electronic commerce, providing everything from financial services to online matchmaking. In this article, authors Arthur R. Rosen and Leah Robinson, of McDermott Will & Emery, dissect recent tax advisory opinions by the New York Department of Taxation and Finance to show the error of the state's approach to taxing online services—which some other states appear to be following—and to advocate for aggressive resistance by taxpayers.

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