Cloud computing involves the remote use (via the Internet and platforms) of computer programs on thousands of servers to undertake various tasks. Though the software and hardware accessed is ultimately stored in a physical format at some location, the user accesses it remotely -- meaning its physical manifestation does not correspond to its point of use on the user's computer. Cloud functions are, therefore, described as services, which leads to a host of tax issues, particularly since few states tax services, and because the issue of taxing software has traditionally been fluid ("The Taxation of Cloud Computing and Digital Content").
Issues notwithstanding, states have attempted to impose taxes on cloud services, but ultimately -- the issue of taxing cloud services is unsettled and the debate is ongoing. Tax Analysts has covered cloud computing as it has appeared in state revenue departments' letter rulings ("Arizona DOR Finds Research, Data Content Subscriptions Subject to Rental Tax") and in state legislation ("Vermont Bill Would Exempt Cloud Computing From Sales and Use Tax"), not to mention from a theoretical standpoint via the experts who contribute commentary and special reports to our pages ("States Should Extend Sales Taxes to Digital Goods and Services," "Cloud Computing: The Answer Is Still 'No'").
Tax Analysts consistently and promptly publishes all relevant developments regarding cloud computing taxation and online services. To stay up to date on all tax-related topics, subscribe to Tax Notes Today Federal.