Cloud Computing and Sales Tax: Who Knows | AccountingWEB

Cloud Computing and Sales Tax: Who Knows

The sales taxation of digital products and electronic commerce has become increasingly more important. As you may know, states are hurting for revenue, and since our economy has moved more and more towards electronic commerce, the states must figure out a way to tax it, or else lose out on much needed revenue.

According to Wikipedia,"Cloud computing" describes a new supplement, consumption and delivery model for IT services based on the Internet, and it typically involves the provision of dynamically scalable and often virtualized resources as a service over the Internet. The term cloud is used as a metaphor for the Internet, based on the cloud drawing used to depict the Internet in computer network diagrams as an abstraction of the underlying infrastructure it represents.

Typical cloud computing providers deliver common business applications online which are accessed from a web browser, while the software and data are stored on servers.

These applications are broadly divided into the following categories that emphasize the concept of "Everything-as-a-Service": Software as a Service (SaaS), Utility Computing, Web Services, Platform as a Service (PaaS), Managed Service Providers (MSP), Service Commerce, and Internet Integration.

How are the states going to tax it?

The problem with cloud computing is where is it located? What state has the right to tax it? Some states may tax it where it is used. Some states may tax it based on the location of the servers. Some states may tax it where the office of the cloud computing provider resides. This is only the beginning of the state of confusion regarding the state taxation of cloud computing and other electronic commerce.

States like Washington, North Carolina, and Wisconsin have updated their laws recently to broaden their sales tax to tax more digital products. New York is really reaching to expand the sales tax to services delivered over the Internet, not just tangible personal property delivered electronically.


If you or your client is involved in cloud computing or selling just about anything over the Internet, chances are, some state wants to tax that sale.

Contact me to obtain a special report, “Practical Tips for Navigating the Sales Taxation of Cloud Computing.”

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Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States.  He also writes a weekly column in Tax Analysts State Tax Notes entitled, "The SALT Effect."  For more info, visit his website:

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Because state and local taxes are deceptively simple and endlessly complicated.

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