Should you be paying sales tax on your cloud solution?
There are a lot of undefined issues relating to whether or not sales taxes should be charged and collected on “cloud” services and online applications. Traditional approaches aren’t quite right, because there isn’t a clear delineation of what is “service” versus “product”. For example, an online storage service may be “service”, but when you are charged for bandwidth or other elements, it starts to be more product oriented and taxation may apply. Online applications or cloud hosted software? In some cases, the platform may be service, but the subscribed application may be taxable software. It’s a clouded issue for service providers and their customers, alike.
‘Kelley Miller of the law firm Reed Smith, who specializes in technology law and specifically tracks how states have been enforcing cloud taxes, says it’s been a tough issue for states. The DOR says in its ruling that the market is evolving “at a rapid pace.” Traditionally tax laws just don’t work for this new era of cloud computing, she says, because there is not a tangible transaction of a disc or piece of hardware. Massachusetts seems to have echoed findings from other states though, she says. “The essence of the question is, are you buying software that people bought in a box at the store 10 or 15 years ago,” she says. If so, then Massachusetts, and other states, have claimed a right to tax it.’
A recent article on CIO.com discusses Massachusetts rulings on the subject, joining a number of other states in attempting to bring clarity to when cloud computing services should and should not be taxed. The decisions sound almost as complicated as the underlying issues, so “clarity” obviously doesn’t mean simplicity.
Read the entire article here