Death, Taxes, And The Cloud

Death, Taxes, And The Cloud

There are a few inevitabilities left in the universe. They are not always pleasant, but they are a fact of life, and although we may be able to point to exceptions, the exceptions serve to solidify the truth of the inevitability.

The most important seem to be death and taxes, and because this is a Technology related information site, we will add Moore’s Law; basically that computing power will double every two years.

When computers were completely physical, the government could tax them as they would a a piece of stereo equipment or appliance. You would go to the store, purchase your hardware or software, and get charged a sales tax for the purchase. You had your stuff, the retailer made a profit, and the government got a cut. Everyone was relatively happy.

Difficulties in Taxing the ‘Net

The rise of Amazon was a preview to the difficulties that the tax system would have with the interstate and international nature of the Internet. Sales Tax models break down with Amazon; if an item is purchased on line, and it is shipped from another state, it is generally exempt from sales tax. What happens if the item is shipped from a facility in the same state as the purchaser? Because shipping charges are negligible, it is worth the extra effort for the purchaser to order over interstate lines to avoid the tax.

Idaho Problems

There are a number of schemes in place and proposed for states to get their “cut” of the cloud computing pie. In October, the Idaho State Tax Commission concluded that Cloud Services are selling software, and that according to state law, software is a taxable property, no matter how the software is delivered. This has prompted Idaho high-tech firms to actively consider moving their servers to Oregon (which has no sales tax, a considerable savings in operating costs).

The Idaho Statesman reports that legislation will soon be introduced that recognizes that cloud computing is a service, in other words, there are no tangible goods exchanged which will be subject to taxation.

(*Update: Please see…)

Vermont’s Solution

In Vermont, Governor Peter Shumlin has proposed simply exempting cloud services for business from sales taxes. Last year the state reimbursed businesses $2million for taxes already collected. The Governor has proposed adding Cloud services to Vermont’s 49 existing sales tax exemptions. However, there is concern from the legislature over the prudence of eliminating any potential State income during these times of tight revenues.

By Pete Knight

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