Double Taxing The Cloud

Taxing the Cloud

New cloud taxes in Idaho are further proof that it’s time to look for a standardized solution. The news hasn’t made waves in the wider media, but when I heard that Idaho might start taxing cloud services, it definitely made me sit up and take notice.

If you haven’t read about it, the Wall Street Journal has a great breakdown of exactly what happened. Some of the details of the case really jump out. In particular, Idaho doesn’t normally tax services. That means an accountant in Idaho isn’t subject to sales tax, while a cloud provider would be. So why the anti-cloud bias? I think the non-local nature of cloud computing, which is such an advantage most of the time, could be the source of the problem here.

If we were in traditional, non-IT businesses we wouldn’t even have to concern ourselves with the tax codes around the nation. The Idaho legislature would mostly affect people in Idaho (who can change their vote if they don’t like what’s happening), but the promise of cloud services is that I can reach people around the world without building costly IT infrastructure from scratch. Now, if some of the people I reach are in Idaho, state sales taxes kick in.

Don’t get me wrong, I don’t have a problem paying my fair share, but this law raises lots of difficult questions. Whose responsibility is it to know that taxes are due? If I have to figure out the tax implications of every client I take on based on their physical location, my business might actually grind to a halt.

Also, why is Idaho taxing the services over the cloud when it doesn’t tax services in-person? It certainly sounds like they are attempting to collect taxes from out-of-state businesses. You know, people who can’t vote them out of office.

Finally, who really has the authority to collect taxes for cloud services? Is it where I live, where my business is registered, where the cloud platform is physically located, where the clients work… theoretically lots of governments, national and local, could decide to get into the mix.

Like I said, I’m all for paying my share, but I can’t help notice the potential for double or triple taxation.

The trend that has me worried isn’t the Idaho tax per se, but the geographic hodge-podge of laws taxing what is truly a transnational business-model. Arizona, Indiana, New York and other states are also starting to tax cloud services, while Tennessee, Rhode Island and more have decided against it. There’s no predicting which way a state will go (party lines don’t offer a clear indication), and depending on how the tax codes are written in each state, the cloud business model could find itself in quite a bind.

It looks like the Idaho legislature is changing their position after a bit of local backlash, but we should still think about how the cloud ought to be taxed. In the long run, arguing that the cloud should be exempt from all taxes is a losing battle, and we may be better off helping officials draft sensible tax policy that won’t rob our businesses of the agility and efficiency that are our greatest strengths.

By Jan Brass,

Jan is a tech industry veteran and self-described geek.  An avid blogger, Jan covers cloud technology news and publishes opinion pieces on cloud computing on her blog, http://janbrass.org.

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