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Most Cloud Computing Services Not Subject to New Jersey Sales Tax

In a pleasant surprise, the New Jersey Division of Taxation recently issued guidance saying that sales tax is not due on most cloud computing services.  New Jersey’s position is contrary to a growing national trend in which many states are taking the position that cloud computing is subject to sales tax as the sale of software.

Technical Bulletin 72 addresses three types of cloud computing services: Software as a Service (SaaS), Platform as a Service (PaaS) and Infrastructure as a Service (IaaS).

The Technical Bulletin says that Software as a Service is not subject to New Jersey sales tax as the sale of software, because it is not delivered in tangible form, it is not downloaded onto the customer’s computer, and title to the software is not transferred to the customer. However, the Bulletin does say that certain types of SaaS may be subject to sales tax as a taxable information service. A taxable information service is defined as:

“The furnishing of information of any kind, which has been collected, compiled, or analyzed by the seller, and provided through any means or method, other than personal or individual information which is not incorporated into reports furnished to other people.”

The Bulletin then cites examples of taxable information services such as Westlaw™, LexisNexis®, CCH and RIA. But it would appear that most other classes of SaaS that do not involve compiling or analyzing information should not fall into the taxable information service category. This is a fact-based determination, which would require analysis on a case-by-case basis.

The Bulletin says that Platform as a Service and Infrastructure as a Service would not be subject to sales tax because they do not represent the sale of tangible personal property. The Bulletin goes on to say that IaaS arrangements that show billing for the rental of hardware (e.g., servers) are not taxable because the customer does not have possession of the equipment.

Finally, the Bulletin says that web hosting and data hosting services are not subject to New Jersey sales tax.

The position taken by the New Jersey Division of Taxation is quite favorable to providers and customers of cloud computing services, as other states have been taking the opposite approach, saying that many of these services are taxable, including states such as New York, Pennsylvania and Vermont.

Companies that provide cloud-based computing services should determine the states in which they might have a sales tax collection obligation, and whether the services they provide are subject to that state’s sales tax.

To see the full text of this new Technical Bulletin, please visit the following link and click TB-72: http://www.state.nj.us/treasury/taxation/publtbnum.shtml.

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About this Author

Marvin Kirsner, Greenberg Traurig Law Firm, Boca Raton, Tax Law Attorney

Marvin A. Kirsner is an attorney at the Boca Raton office where his primary areas of practice deal with corporate, transactional and industry specific tax issues. He serves as the co-chair of the State and Local Tax (SALT) Practice.


  • Internet tax and electronic commerce tax issues

  • Multistate tax issues

  • Federal, state and local tax controversies

  • Federal and state tax planning for business...