Taxing the Cloud

(The following are my notes from a panel discussion I attended at the National Conference of State Legislatures. These notes do not reflect my opinion on the subject matter, but rather serve to let you read what the dialogue was and with whom.)

Senator Deb Peters


  • Examining cloud computing and how states have been taxing Cloud computing
  • Intros of speakers

Steve Pierce (AT&T Proof Concept Labs)

Cloud Primer

  • National institute of standards and technology definition
  • Why are we attracted to Cloud? MORE FOR LESS; less software, less hardware, less employees; on demand compute and storage capabilities; self serve; my portal; very little overhead

Cloud Models

  • SaaS – Software as a service
  • PaaS – Platform as a service
    • CMR
  • IaaS – Infrastructure as a service
    • “virtual machine”
    • User their servers
    • Customer management responsibility
      • Application
      • Database
      • OS
      • Service Provider Responsibility
        • Servers
        • Storage


  • Benefits
    • Reduced capital costs
    • Increased flexibility
    • Meet dynamic demand of applications
    • Combine network + IT resources for greater control
  • Examples
    • AT&T Compute as a Service
    • Amazon EC2
    • Google Compute
    • Rackspace Cloud
  • What is IaaS
    • Completely ready-made technology stack
    • Standardization infrastructure on which you can deploy publications
    • Scale up for more users


  • Benefits
    • Lower total cost of ownership for applications
    • Easy access for distributed workforces
    • Reduced time to deployment

What do companies want to do?

  • Improve productivity
  • Reduce my cost
  • Remove the complexity

Advantages of Cloud

  • Off-premise
  • On-Demand

Steve Kranz (Sutherland Asbill & Brennan)

  • There is no clear tax treatment
  • Services are exempt from tax unless a statutory names it as taxable
  • What is the service? Is it taxable?
    • Software – delivered electronically versus access
    • Data processing service
    • Computer service
    • Information service
    • Lease of tangible personal property – renting a service, so taxable? Which state taxes it?
    • Communication service
    • Ancillary service
    • Storage services – Does IFTA apply?
    • Not enumerated taxable service
  • Some states say software is taxable, some say not
  • Some will call this data processing; some tax and some do not
  • Which jurisdiction can tax? Delivery site?
  • Where is the service taxable?
    • Server location
    • Contracting address
    • Billing address
    • User location – potentially multiple
    • Duplicate taxation of the same transaction
    • User not always purchaser



Scott Mackey (KSE Partners LLP)

Tax law is antiquated

What are the key issues for policymakers?

  • What is it?
    • Software
    • Service
    • Combination of the two
  • Is there a non-Cloud Based equivalent service?
    • If so, is the equivalent taxed?
  • Where is the service performed and delivered
    • Who has the ability to tax?
  • Economic impact / Economic development
    • On providers of cloud based services
    • On purchasers of cloud base services
  • Potential for tax pyramiding (a tax on a tax)

NCSL Task Force Principles

Consensus process including:

  • 1A Establish consistent sourcing rules to prevent double taxation or tax avoidance
  • 1B Do not impose discriminatory taxes on Cloud Based Services
  • Don’t take us into the telecommunications tax regime
  • Don’t tax cloud based service when an equivalent is not taxed
  • Base tax decisions on the service, not the provider
  • Tax imposition decisions should be made by legislators, not administrative rulings
  • Make definitions clear to avoid uncertainty
  • Recognize that CBS encompasses a broad range of services which need to be addressed in statute
  • Involve providers of CBS in drafting statutes
  • Provide clear and consistent rules that govern bundled transactions involving CBS

Concluding thought

  • NCSL can help guide legislative discussion

Final conversations

  • NOLO software
    • Software was taxable when it was on a disk; largely states said that if you download it, we’re still going to tax it; but what if you put the data on the cloud?? Is there tangible property?

We don’t tax medical services, but should we tax the cloud based medical services?

  • What about taxing an ATM? That data is stored elsewhere
  • A .PDF in Colorado is taxed as tangible personal property (tpp) – that decision was made by agency, not legislator

Ross Hunter (Rep. Washington)

Gladiator as an example

  • rent from Blockbuster – taxed
  • buy at Best Buy – taxed
  • download into hard drive – taxed
  • stream from Netflix – this guy wants to tax it
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