Cloud computing is rapidly becoming the way business is done, and with its growth, so too grow the challenges facing state revenue authorities and tax practitioners.
“It’s really going to take the legislatures getting involved in this to put some finality to it,” said Mary T. Benton, partner in Alston & Bird’s State and Local Tax Group.
Some states consider cloud computing sales to be subject to tax because customers effectively receive a taxable license to use the underlying software.
That is “completely the wrong analysis,” Benton said. “To have a sale you have to have the transfer of title or possession, and you don’t have either under those constructs.”
Benton said she believes cloud computing services should not be subject to taxation and that states should create new laws to tax cloud computing rather than stretch old, outdated statutes.
“Taxpayers obviously would rather have a lower tax burden, but I think most taxpayers would also like certainty,” Benton said. “That’s much better and preferable to just having these rulings that come out where it can change on a whim depending on who’s heading up the department at any given time.”