Sales Tax – If You Thought You Had Enough Of Its Complexities; It’s Only Getting Worse!

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As technology evolves, so should tax policy. More often than not this is not the case. Technology evolves much quickly than tax policy, therefore leaves plenty of room for discrepancies and loop holes in the law. This is mostly true for digital goods and services.

Recently, the State of Indiana clarified how sales and use tax applies to cloud computing services, Software as a Service (SaaS), and “various other matters relating to remotely accessed software.”

National Institute of Standards and TechnologyAccording to the National Institute of Standards and Technology of the U.S. Department of Commerce, cloud computing is a “model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, services, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction.” Three of the most common cloud computing services are commonly (though not uniquely) referred to as:

  • Software as a Service (SaaS): a service provider hosts software application over the internet for a customer
  • Infrastructure as a Service (IaaS): a service provider owns, maintains, operates, and houses equipment (such as hardware, servers, network components, etc.) used to support a customer’s operations, which the customer accesses via the internet in order to use the equipment
  • Platform as a Service (PaaS): a service containing elements of both IaaS and SaaS
    Indiana tax code doesn’t specifically address cloud computing, therefore taxability “depends on the facts and circumstances of each transaction.”

 

Of particular significance are the following:

  • The amount of control or possession the purchaser is granted in the software
  • The object of the transaction
  • The ownership rights, if any, the purchaser has in the software

Depending whether the purchaser is able to download the software and/or manipulate it to better function in its environment are all factors that the state would consider when deciding whether cloud computing is subject to Indiana sales tax.

The taxability of cloud computing services is extremely complex and varies from state to state. If you are currently doing business in Indiana and unsure how to treat cloud computing for sales tax purposes, please feel free to contact lmcnair@withum.com.

Ask Our Experts

Lejdi McNair Lejdi McNair
T (609) 520 1188
lmcnair@withum.com

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To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

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