Kat Jennings

Building the first Virtual Offices in the world for TaxConnections members and bringing them to life has been very exciting. The opportunity to advance the professional lives of our tax, accounting, finance and legal members by providing them all the tools they need to operate in the cloud is now a reality.

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TaxConnections Picture - Connecting To Cloud ConceptIt is likely that most businesses today are using a cloud platform in one way or another.  Most commonly, they are doing this via remote access to software and/or hardware. There are a number of benefits to using cloud platforms.  However, cloud computing provides vendors and purchasers alike with a variety of taxability issues.  As cloud computing is a relatively new phenomenon, it has eclipsed outdated sales and use tax laws, resulting in uncertainty on how to tax such products. In this blog post, we’ll cover a few of the general issues that arise when determining the tax treatment of cloud computing.

The biggest hurdle in taxing the cloud is that there is not much legal clarity on the subject.  In looking at the precedent set by states, tax authorities have generally not provided enough guidance to aid tax professionals in determining the proper tax treatment.

One area that creates challenges is the sourcing of cloud transactions.  When determining how to source and characterize a cloud transaction for sales and use tax purposes, states will generally take one of two different approaches.  They will either source the transaction to the location of the cloud provider’s server or to the location of the end-user which they consider where the benefit is received.  From a sales tax perspective, the concepts of destination and benefit are not easily applied to digital items.  A seller of cloud products and services may have no idea where the receipt takes place, or where the item is used. From a purchaser perspective, location of use may not always be known – or may be from multiple locations.  For an example, consider electronically delivered software.  Is “use” of the product at the server location or at the user’s location(s)? Read More