New Jersey and the Taxation of Software Services
- Jul 10, 2013 | Gail Cole
Are cloud computing services taxable? After much deliberation, Vermont determined that they are. In Idaho, they aren't. And although the taxation of cloud computing services is controversial in Massachusetts, it may well be on its way to becoming a reality.
And New Jersey? A technical bulletin issued earlier this month by the New Jersey Division of Taxation explains the application of sales and use tax to cloud computing services (SaaS, PaaS and IaaS).
Certain services are subject to sales tax under New Jersey law. These include, but are not limited to:
- Producing, fabricating, processing, installing, maintaining, repairing or storing tangible personal property or a specified digital product if it is not being purchased for resale or "held for sale in the regular course of business…."
- Tanning services.
- Massage services.
- Information services.
Tax the SaaS
As noted by the New Jersey Division of Taxation, "[u]se of software application is not listed as a taxable service." Most charges for Software as a Service software (such as Salesforce and DeskAway), therefore, are not subject to sales tax.
However, some SaaS information services are taxable. These include "[c]harges for SaaS where the software is accessed and used as a tool for providing information to customers by an information service provider…."
New Jersey law defines information as "the furnishing of information of any kind, which has been collected, compiled, or analyzed by the seller, and provided through any means or method, other than personal or individual information which is not incorporated into reports furnished to other people."
In sum, if SaaS is not providing information, it is not a taxable service. If it is providing information, it is taxable.
Don't Tax the PaaS or the IaaS
Both Platform as a Service (PaaS) and IaaS are not taxable services in New Jersey.
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