Kendall Houghton was quoted in a Bloomberg article discussing the challenges of creating new state sales tax systems for the rapid shift from the face-to-face exchange of tangible goods to business transactions being conducted over cloud-based servers and software (remote networks of computing resources shared by multiple customers). According to the article, the 20th century rules of taxation no longer apply to the use of these emerging technologies. “For example,” Houghton explained, “states have long taxed off-the-shelf software purchases and they often see purchasing cloud-based services as analogous to shopping at an office-supply store.” Houghton said companies may challenge that analysis and contend that the shift of software out of a physical location transformed what was once a tangible item into a service.
This changing nature of business transactions creates confusing situations for state tax administrators: “The departments of revenue have pretty old definitions of tax base items for sales tax purposes. What we see is a tendency to try and shoehorn cloud computing services and products into existing definitions, so that you can say yea or nay on the taxability.”
“So far, most states haven’t rewritten sales tax laws to address these concerns or issued regulations,” she said.