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Tax Tips – January 2012
State Amnesty Programs At-a-Glance
| State |
Amnesty Period |
Benefits |
| Ohio - Consumer's use tax |
Oct. 1, 2011 to May 1, 2013 |
Interest & Penalties waived¹ |
| Ohio - General |
May 1, 2012 to June 15, 2012 |
½ Interest & Penalties waived |
(1) Depending on specific circumstances. For additional information on Ohio's consumer's use tax amnesty program, click on the following link: http://tax.ohio.gov/divisions/sales_and_use/index_use.stm
“Cloud” Software: Taxable? And Where?
“Cloud” software is rapidly becoming the IT model de jour. And states are just beginning to grapple with the taxability of cloud related services. Tennessee is a case in point.
Tenn. Code Ann. § 67-6-231(a) (2010) specifically provides that the “retail sale, lease, licensing or use of computer software” in Tennessee is subject to the sales and use tax, “regardless of whether the software is delivered electronically, delivered by use of tangible storage media, loaded or programmed into a computer, created on the premises of the consumer or otherwise provided.”
The Tennessee Department of Revenue’s point of view is that no sale or use of tangible personal property occurs in Tennessee when accessing a software application via the Internet, because the software vendor does not transfer title, possession, or control of the software application at any time. Additionally, while the granting of a license to use computer software constitutes a taxable sale, any such sale in the case where the software is accessed via the Internet occurs where the server is located. Letter Ruling No. 11-58.
Other states have interpreted the word “use” differently. For example, in New York, the sale of the license to use software constitutes the sale of prewritten software subject to sales tax, regardless of where the software is stored. The situs of the sale for sale tax purposes is the location associated with the license to use (i.e., the location of the customer’s employees that use the software).
Tennessee’s ruling also notes that the use of the software application via the Internet involves the electronic transmission, conveyance, or routing of data between points, and the software application as such could potentially be characterized as a telecommunications service under Tenn. Code Ann. § 67-6-102(92)(A). But, upon finding that . . .
(1) the service allows data to be generated, acquired, stored, processed, retrieved, or delivered electronically to the subscriber, and
(2) the primary purpose for the underlying transaction is the management and processing of the subscriber’s data and information,
. . . the Department concluded that the software application falls under the category of data processing and information services, which are specifically excluded from the definition of “telecommunication service” under Tenn. Code Ann. § 67-6-102(92)(B)(i). The provision of access to the software application via the Internet therefore did not constitute a taxable telecommunications service.
As is typical in our multistate environment, there are different points of view around the taxability of cloud computing services. Note that if the Tennessee based subscriber described in the ruling had employees using the software in New York, New York would tax the transaction even though Tennessee would not. Confused? Stay tuned. More rulings are bound to come in 2012.
Indiana Reaches Agreement with Amazon
IN
Gov. Mitch Daniels has announced that Indiana has reached an agreement with Amazon.com for the online retailer to begin collecting Indiana sales tax on Internet transactions beginning January 1, 2014, or 90 days from the enactment of federal legislation addressing the online sales tax issue, whichever is earlier. In exchange, the state of Indiana will not assess the company for sales tax for other periods. Indiana becomes the fourth state to reach an agreement with Amazon.com to collect sales taxes in future years, pending passage of federal legislation. Last year, both California and Tennessee entered into agreements with Amazon, calling for the online retailer to begin collecting sales taxes in 2014, while South Carolina passed a law that will exempt Amazon from collecting sales taxes until 2016.
Amazon currently operates three warehouses in Indiana, and has announced plans to open a fourth. Similarly, Amazon has warehouses or fulfillment centers in California, South Carolina and Tennessee as well, and has pledged significant capital investment and job creation as part of their agreements with these states.
Click-Through Nexus Legislation Update
FL, HI, MN
A number of states are already off and running in 2012 with legislative efforts to require online retailers to collect taxes in their states.
A bill (SB 1352) has been filed in the Florida Senate that includes a sales and use tax click-through nexus provision and notice requirements. If the legislation is enacted, the term "mail order sale" would be amended to include sales of tangible personal property ordered through the Internet. If enacted, the bill would be effective July 1, 2013. Legislation (HB 1694) pre-filed in the Hawaii House of Representatives includes use tax click-through nexus and affiliate nexus provisions that would, if enacted, take effect on July 1, 2013, if the state has not enacted a law in accordance with any federal law authorizing the states to require a seller to collect taxes on sales of goods to in-state purchasers without regard to the location of the seller. Legislation (HF 1849) pre-filed in the Minnesota House of Representatives would, if enacted, create a sales and use tax click-through nexus provision that would become effective for sales and purchases made after June 30, 2012.
Watch for similar legislation to be proposed in other states in the coming months, as click-through nexus has become a popular avenue for states to expand their tax base and collect sales tax on previously untaxed online sales from out-of-state retailers.
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