STATE TAXATION
OF CLOUD
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AGENDA
What is Cloud Computing?
> Different service models (SaaS v. IaaS)
How are taxpayers addressing the taxation of
Cloud Computing?
How are states taxing Cloud Computing?
How to develop tax policy to address the taxation
of Cloud Computing?
WHAT IS
CLOUD
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WHAT IS CLOUD COMPUTING?
Depending on the service provider, Cloud Computing can
be used to describe different types of service models:
• Access to software (SaaS)
• Access to platform (PaaS)
• Access to infrastructure/h
ardware (IaaS)
CLOUD SERVICE – WHAT ARE THE COMPONENTS?
IaaS / PaaS SaaS
HOW ARE TAXPAYERS
ADDRESSING THE
TAXATION OF CLOUD
HOW ARE TAXPAYERS ADDRESSING THE
TAXATION OF CLOUD COMPUTING?
Exclusive survey conducted of leading Cloud
Computing Providers
7 key questions asked about the companies decisions
and experiences regarding the taxation of Cloud
Computing
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SURVEY RESULTS
How does your company source sales of cloud computing services for sales tax purposes?
Customer billing address
Customer physical location
Where service is
SURVEY RESULTS
Does your company apportion sales of cloud computing services for sales tax purposes if the benefit of the service is received at more than one
customer location?
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SURVEY RESULTS
Does your company apply costs-of-performance (COP) sourcing to receipts from sales of cloud computing
services in states that allow for COP sourcing?
Yes No
SURVEY RESULTS
If your company applies COP sourcing to receipts from sales of cloud computing services, are sales
generally sourced to the server location?
Yes
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SURVEY RESULTS
In states that require market sourcing for receipts from sales of cloud computing services, how does
your company source sales?
SURVEY RESULTS
Has a state examined or audited your cloud computing sourcing determinations for:
Sales tax Income tax
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SURVEY RESULTS
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% S ou rc in g d et er m ina tio n Ta xa bi lit y det er m in at ion : a ss er ted it i s a ta xa bl e te le com m un ic at io ns se rvi ce Ta xa bi lit y det er m in at ion : a ss er ted it as a ta xa bl e da ta pr oc es si ng or in fo rm at ion s er vi ce O th er (p lea se s pe ci fy )If your cloud computing sourcing determinations have been examined or audited, has the sate challenged or questioned (check
HOW ARE
STATES
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STATES APPLY VARIOUS EXISTING METHODOLOGIES
IS IT A SERVICE?
• Not an enumerated taxable service – not taxable
• Expressly exempted – VT (temporarily), RI (remote access)
• Taxable service
> Information service
> Data processing service – TX, OH
> Digital automated service – WA
> Computer-related services – CT
> Communication service – SC
STATES APPLY VARIOUS EXISTING METHODOLOGIES
IS IT SOFTWARE?
• Generally, there must be a transfer of software. States have
attempted to tax the electronic transfer using different theories,
including:
> A taxable transfer is effected by any means, including
electronic access (Illinois, and several others)
> A taxable transfer occurs when there is a remote access
(Massachusetts, Washington)
> A taxable transfer occurs when there is a license to use the
software
> Constructive Possession: A taxable transfer occurs when a
customer has the right to control, use, or direct the use of
software (New York)
• But what constitutes “use”?
HOW CAN
CREATING SOUND TAX POLICY
Two Fundamental Tenants of Sound Tax Policy
> Provide Consumers a Tax Neutral Choice
> Functionally Equivalent Services Should Be Taxed the Same
Goals of Reform
> Foster growth and innovation
> Acknowledge transition from manufacturing economy to knowledge economy – taxes impact investment decisions
> Simplify compliance for taxpayers and administration for tax agencies (not mutually exclusive)
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CREATING SOUND TAX POLICY
Taxes should be easy for the state tax
agencies to administer and for taxpayer’s to
comply with
>Uniform definitions throughout the country
>Uniform rules for sourcing sales and income
taxes
CREATING SOUND TAX POLICY
Several Avenues to Achieve Precedential, Consistent
Guidance
• State Legislation
> Proposing state legislation to clarify the taxability of Cloud Computing services.
> e.g., Washington’s digital services sales tax statute > Creates more “permanent” solution
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CREATING SOUND TAX POLICY
Several Avenues to Achieve Precedential, Consistent
Guidance
• State Regulations, Administrative or Other Guidance
> Request that states amend regulations or update administrative
guidance to address state’s position on taxability of Cloud Computing services.
> Establishes public guidance and state policy
CREATING SOUND TAX POLICY
Several Avenues to Achieve Precedential, Consistent
Guidance
• Federal Legislation
> e.g., moratorium on taxation (similar to ITFA), inclusion in digital goods bill, other federal legislation
> Establishes uniform treatment
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CREATING SOUND TAX POLICY
Several Avenues to Achieve Precedential, Consistent
Guidance
• Streamlined Sales State Tax Agreement (“SSTP”)
> Address in SSTP definitions
> Create some uniformity in definitions in SSTP states
CREATING SOUND TAX POLICY
Several Avenues to Achieve Precedential, Consistent
Guidance
• Multistate Tax Commission (“MTC”)
> Propose and work with MTC to develop model legislation addressing Cloud Computing
> States may then adopt Model laws
> May create some uniformity in taxation
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