Cloud Computing Tax Under Discussion in Vermont

By | Nov 19, 2012

Lawmakers at the Vermont statehouse will discuss the viability of implementing a cloud computing tax for the state on November 19, 2012, according to a recent article on Boston.com. This will have far reaching implications for all providers of cloud computing services in Vermont. This discussion is the result of a committee formed to investigate the viability and possible implementation of such taxes and will include not only opinions from state tax officials and IT analysts but also some input from Washington tax officials who have had previous experience with the issue.

It is no surprise that in a difficult economic climate, state officials are seeking new avenues of taxation. This particular topic has been the subject of debate for more than a year, with individual states adopting various methods to tackle the issue. In fact, PricewaterhouseCoopers has released an entire document covering this topic, one that addresses the various tax issues that need to be considered when either providing or receiving cloud computing services.

Primary issues of contention include the difficulty in assigning tax rates to a cloud computing area where there are no tangible physical goods involved, the implications for SaaS and PaaS providers, data centers, private and hybrid clouds, and of course, the costs for small and midsize companies.

From the actions of other U.S. states, it seems clear that taxes are likely to be levied on those who need to download software for specific cloud computing solutions, even if not located in the same state as the service provider. If software licenses are issued, these could also be subject to taxation.

What does this mean for midsize companies where budgets are often limited? It could create a situation where service providers that are not obligated to charge their clients sales tax will have a distinct competitive advantage over providers in states that levy taxes on cloud computing. Not an ideal situation, but certainly one that could result in the relocation of data centers to states without cloud computing taxes. Midsize companies that retain providers in states that are subject to taxation will ultimately pay more for cloud computing services, as these taxes are typically passed on to clients by the providers.

Once the Vermont statehouse announces its findings, service providers and clients in the state will be able to analyze the implications and costs of cloud computing (including possible taxes) and make informed decisions on how to proceed. A clearly defined taxation method will need to be outlined, one that covers all possible scenarios, including public, hybrid, and private clouds.

This post was written as part of the IBM for Midsize Business program, which provides midsize businesses with the tools, expertise and solutions they need to become engines of a smarter planet. Like us on Facebook. Follow us on Twitter.

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