Policy Documents

Nuts-and-Bolts Answers On Cloud Computing

Timothy Noonan –
August 10, 2012

I know, I know. Another article on cloud computing? Sometimes we tax commentators are like our favorite sales tax auditors: We’re dogs with a bone, and we can’t let go. The tax implications of cloud computing have received tremendous coverage, both in this publication and others. Perhaps it’s because we tax people really just can’t get enough of the clever metaphors (‘‘cloud computing is a gray area,’’ ‘‘the fog of cloud computing,’’ and so on).

I’ll try to do something different in this column. First, I promise: no cloud computing metaphors. It might be difficult to restrain myself, but I think I can. Second, I will avoid an extensive discussion of the technology driving cloud computing and focus more on nuts-and-bolts questions. Indeed, for most vendors and consumers in this area, the intricacies of the different technological aspects of cloud computing(software as a service (SaaS), platform as a service (PaaS), infrastructure as a service (IaaS),and so on), while possibly more interesting, are less important than more nuts-and-bolts questions. As outlined in the excellent piece by Cara Griffith in an earlier issue of this publication, some states make distinctions between the different tax implications of SaaS, PaaS, IaaS, and so on, but most don’t.1 So perhaps the most important nuts-and-bolts question for taxpayers is: Are my sales subject to tax in x state? So that’s what I will endeavor to do in this article. We will essentially take a trip around the nation and visit several states to see how they treat cloud computing questions. That’s practical, and I hope it will be a handy resource for those who have questions in particular states. It also shows the problem states are having with defining how to treat those technologies when a differing and sometimes arbitrary position is being taken.