This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies.
Several state revenue departments are taking approaches that are clearly inconsistent with their state laws to reach conclusions that cloud computing services are subject to tax, Arthur R. Rosen, Leah Robinson and Hayes R. Holderness, all with McDermott Will & Emery LLP, write in this week's issue of the Bloomberg BNA Weekly State Tax Report.
The state revenue departments of Arizona, Indiana, Massachusetts, Michigan, New York, Pennsylvania, Utah, and Vermont-and a state appellate court in Colorado-have determined that obtaining a service from the cloud amounts to obtaining constructive possession of the prewritten (or "canned") software that resides on the service provider's own server, the authors write.
The relevant state tax statutes, while not identical, have very similar goals, the authors explain. Arizona imposes a transaction privilege tax on any transfer of possession of tangible personal property. Indiana imposes a gross retail sales tax on transfer of possession or control of tangible personal property, and Massachusetts imposes sales tax on any transfer of possession of tangible personal property.
Michigan imposes sales and use tax on the proceeds of transfers of ownership of tangible personal property, while New York imposes sales tax on receipts from transfers of possession of tangible personal property. Pennsylvania imposes sales tax upon each transfer of the possession of tangible personal property. Utah imposes sales tax on any transaction under which right to possession of tangible personal property is granted, and Vermont imposes its sales tax on any transfer of possession of tangible personal property.
Finally, the local sales tax ordinance at issue in the Colorado Court of Appeals decision imposes sales tax on any transfer of possession of tangible personal property.
Thus, under the laws at issue, taxability rests on whether there has been a transfer of possession of tangible personal property. Because prewritten software is considered tangible personal property in these states, the central, and hotly disputed, issue in determining the taxability of the cloud computing services is whether the purchaser really has the degree of control over the software necessary to constitute possession as intended by the relevant sales and use tax statutes, the authors write. But many state revenue departments are failing to follow, or even consider, relevant state laws and the court decisions analyzing those laws.
The complete article by Rosen, Robinson and Holderness, which analyzes the approaches by revenue departments in Arizona, Colorado, Indiana and Massachusetts, toward the classification of cloud computing for sales and use tax purposes, is available in this week's issue of the Bloomberg BNA Weekly State Tax Report.
In other developments…
BBNA Webinar - October 21: Hearing Officer to Discuss Proposed Changes to MTC's Compact
Free BBNA Webinar - October 25: COST Analyzes 2013's Hottest Developments With a View to 2014
2014 State Business Tax Climate Index , a new report by the Tax Foundation
California - Qualified small business stock gain exclusion/deferral extended, FTB provides refund guidance , a new alert by PwC
Sutherland SALT Shaker: September 2013 Digest
Business Income Taxes , a new report by the National Conference of State Legislatures
Compiled by Priya D. Nair
Follow us on Twitter at: @BBNATax
Join BNA's State Tax Group on LinkedIn here.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to books@bna.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to research@bna.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)