Practical Tips for Navigating the Sales Tax "Minefield" of "Cloud Computing"
If you are in business, then most likely, you are a buyer or seller of software/services that is considered "cloud computing."
If you are impacted by "cloud computing," you may be interested in learning what practical steps or strategy you can follow to help you navigate the sales tax "minefield" of "cloud computing." The following is a list of questions or items that you should take into consideration when buying or selling "cloud computing" services/software.
- What state is the buyer located?
- What state is the seller located?
- What state is the server located?
- Does the seller have nexus in the state where the customer is located? Where the server is located?
- Does the customer receive a copy or have access to the software?
- Who is "using" the software? (i.e., is the seller using the software to provide a service OR is the seller licensing software to the purchaser for the purchaser's use?)
- Pay careful attention to the language in the sales contract. This will help determine or control if the sale is a license of software or a service agreement.
- Be careful how the product/service is marketed.
- Are you selling/purchasing software or expertise? (i.e., what is the primary purpose or objective of the transaction?)
- Is it possible to source the transaction to a nontaxable jurisdiction?
- How is the service or software taxed in the states where the buyer, seller and server are located?
- Does it help or hurt to bundle the service and software pieces of the sale?
Most states still don't know how they are going to tax cloud computing. But one thing is certain, they are going to definitely try.
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: www.leveragestateandlocaltax.com
You can reach Brian at firstname.lastname@example.org.
Because state and local taxes are deceptively simple and endlessly complicated.