Weekly Roundup: How State Tax Departments Are Classifying Cloud Computing Transactions


 “Cloud computing vendors and users should expect state sales and use tax treatment of cloud computing to continue to change and evolve, but clarity and uniformity may not be achievable in the near term,” says Scott D. Smith with Baker, Donelson, Bearman, Caldwell & Berkowitz, PC in the firm's Nashville, Tennessee office.

But Smith’s survey of how states have opted to treat cloud-based transactions provides a useful framework for analyzing the potential pitfalls or opportunities that may come from a company’s foray into the computing clouds. In his story in the Bloomberg BNA Weekly State Tax Report, Smith sets forth the rationales states have used in finding cloud computing transactions exempt or taxable.

States that have found the transactions to be exempt have concluded the software as a service (Saas) transaction was:

  •  exempt as electronically-delivered software;
    •  not taxable because no other tangible personal property was delivered to the user or, alternatively, any software deemed to have been delivered occurred out of state at the server location; or
      •  was (properly) a nontaxable service transaction.

         States that have found the transactions to be taxable have concluded that the transaction was a:

        •   taxable electronic delivery of prewritten software,
          •   taxable service,
            •  deemed transfer or license of tangible personal property (prewritten software), or
              •  taxable transaction that should be sourced as an in-state delivery to the user.

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                Compiled by Steven Roll

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