Businesses Beware: Hidden Sales Tax Implications for Companies Operating Online

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There are new, hidden sales tax implications for businesses operating on the Internet. Many states are now classifying data that's being sold through the "cloud" as personal property and are out to collect sales and use tax from businesses and individuals on these services.

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That's according to New York accounting firm Marks Paneth & Shron. Steven Bryde, Principal in MP&S's State and Local Tax Practice, explains the ways many states are aggressively developing, interpreting and enforcing new sales tax laws involving cloud computing and software as a service.

New York and other states have always charged sales tax on canned software that is purchased and downloaded -- classifying it as tangible personal property. However, New York State now says if a New York-based customer purchases data through the cloud from a company located elsewhere, that customer now has purchased the equivalent of canned software and owes New York use tax. In addition, if a California seller, for example, has a "physical presence" in New York, the seller will be required to register as a New York vendor and collect the New York sales tax on such sales.

There's also a wrinkle for companies that provide customers with the information through the cloud, such as a taxable information service. For example, if an Arizona-based company has a presence in New York, it must register as a vendor and must collect sales tax if it sells such a service to its New York-based customers.

Mr. Bryde warns that many states are ravenous for sales tax and are zeroing in on places -- like the cloud -- where previously they haven't gotten sales tax revenue. This can be a nuisance for big companies and detrimental to small or new businesses that aren't aware of the fast-changing state and local tax laws.

Source: Market Wired

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