TheDMAWay

Cloud Computing Charges Exempt from Sales/Use Tax in Many Jurisdictions

by DMA Staff | Feb 21, 2017
DMA_Blog_CloudComputing_SalesUseTax

Technology continues to change and improve at a rapid pace. In the software marketplace specifically, there has been an evolution in the manner in which taxpayers receive software. Today, there are several ways that software is received, and the sales/use taxability is different as illustrated below: 

Method of Software Receipt/Access Taxability 
Obtained on disk/CD and downloaded onto taxpayer systems. Taxable in most states/situations
 Linked on the internet and downloaded onto taxpayer systems.                                                       Taxable in most states/situations 
 Accessed via cloud and/or hosted on vendor systems. Exempt in most states/situations 


As indicated above, cloud computing charges are exempt from sales/use tax in most states. Cloud computing includes SAAS (Software as a Service), PAAS (Platform as a Service), and IAAS (Infrastructure as a Service). Vendor invoices for these transactions may not contain appropriate detail regarding the software and/or cloud computing charges. In addition, taxpayers may not correctly allocate the transactions to the appropriate accounts, departments and cost centers to ensure accurate sales/use tax application.

DMA works with our clients to ensure software and cloud computing charges have the correct sales/use taxability applied. We perform detailed analyses and investigation of these transactions and recover any overpaid sales/use tax. We also work with our clients to modify their systems and processes for determining taxability on these items.

Please do not hesitate to contact your local DMA office should you have specific questions or requests.