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Sales Tax and Cloud Storage

  • Dec 19, 2015 | Suzanne Kearns

With the availability of cloud storage, it’s no wonder that more and more business owners are choosing to store most of their files, data, and other important information in the cloud. In fact, according to Silicon Angle, 25 percent of people say that if they could only move one part of their business operations to the cloud, it would be storage. That same article predicts that by 2018, the global market for the cloud will reach $79.1 billion.

That’s a lot of money being spent on cloud storage and other cloud services, and the state department of revenues are taking notice and looking to it as a new source of revenue.

Do States Charge Sales Tax on Cloud Storage?

Since the sale of packaged software programs, DVDs, and other forms of data have moved to the cloud, states are scrambling to make up for the loss in sales tax revenues. It was easy to tax a software product that comes in a box because it’s clearly tangible personal property and subject to sales tax. And if a program is downloaded on to a home computer, states can claim that the product entered their state, so they have the right to tax it. But when the software is stored in the cloud, and customers can only access it by paying for the privilege, it gets trickier.

Ohio was one of the first states to change tactics when it ruled last year that if the service benefits a business (not an individual) in Ohio, then the service is subject to the state sales tax.  In addition, the local jurisdictions can tack on their local taxes to the service.

On the other hand, Utah says that the cloud storage fees are only taxable if both the buyer and seller are located within the state. If the seller is located outside of Utah, it is up to the buyer to pay use tax on the sale.

In contrast to Ohio and Utah, seven states have ruled that cloud storage is not taxable. So far, Florida, Georgia, Massachusetts, Tennessee, South Carolina, Virginia, and Wyoming have all ruled against charging sales tax on cloud services.

Even the Streamlined Sales Tax Board has made no decision about whether or not the member states should charge sales tax on cloud computing, and according to Stateline, they may wait for Congress to make the determination.

How to Determine Your State's Rules

If you are a seller or buyer of cloud storage, you will have to do a little detective work to determine the law of the land where you live. Your first step should be to check with your local department of revenue to determine whether you should be charging sales tax or paying use tax on the service.

And remember, the rules for sales tax and cloud storage and computing are changing often, so be sure to stay current on the rules for states in which you work or have nexus.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Suzanne Kearns
Avalara Author Suzanne Kearns