In providing cloud computing services, Application Service Providers and other providers of SaaS, PaaS, and IaaS – software as a service, platform as a service, and infrastructure as a service, respectively – use their own hardware, operating systems, and software to provide services that customers receive over the internet.   Many state revenue departments have treated the provision of cloud computing services as a taxable transfer of the prewritten software used to provide those services; however, these agencies fail to consider whether sufficient “possession” or “control” of that software is transferred from a provider to a customer to effectuate a taxable transfer under the states’ statutes.

This recently published three-part series examines the approaches of several state revenue departments toward the classification of cloud computing services for sales and use tax purposes, particularly focusing on incidents of agency disregard of relevant statutory authorities but also noting a handful of positive developments.  Building on this analysis, the article provides practical insights and best practices for taxpayers seeking to avoid falling victim to the aggressive approaches of these state revenue departments and any likeminded revenue departments that have yet to provide guidance on this issue.

Read the full series here.