Dozens of states appear to be gearing up for a debate over whether cloud computing should be taxed, an issue that is taking shape due to the rather meteoric rise in popularity and expansiveness of cloud-based services. Twenty years ago, consumers were forced to purchase physical copies of software they wished to access. Later, software became downloadable, but payment was received for the access codes required to use it. Today’s cloud technology and software-as-a-service (SaaS) options are cutting out the middleman, allowing users to pay a fee for remote access to products and services, curtailing much of that tax revenue.
According to an article from Governing, many state officials feel that even though the consumer has no direct control over the software they’re accessing, it still equates to the direct purchase of software or access codes and should be subject to tax. The article goes on to quote dissenting Vermont state Senator Vincent Illuzzi as saying, “Historically, only material which you take physical possession of is appropriate for taxation. It’s only when you obtain a product, not just use a product that you never have control of.”
This isn’t the first time the internet has prompted a tax debate; many states have already addressed the issue of taxing online purchases, but the minute differences between a physical purchase and mere access of services appears to be blurring some lines. Many states are coping with the effects of the recession and inadequate tax revenues, so it’s not surprising that this issue is rising to the forefront or that the answer is far from unanimous even from within the states’ own political scenes. While they figure out which cloud services should be taxed, companies and consumers are left to consider what sort of impact this potential change may have on cloud-based businesses and the wallets that support them.