David Colker, Global and US Chair, Tax Practice, DLA Piper Silicon Valley Hugh Goodwin, Partner, DLA Piper Silicon Valley

Transcription

1 State Taxation of Cloud Computing and Other E-Commerce Transactions David Colker, Global and US Chair, Tax Practice, DLA Piper Silicon Valley Hugh Goodwin, Partner, DLA Piper Silicon Valley

2 Overview Area of extreme complexity States are attempting to apply old law to current technology State revenue agencies frequently adopt positions not supported by law 2

3 Software as a Service: What is it? Software hosted at a central location Provided to multiple users who access and use the software from a remote location Customers typically pay for the service based on use or through a periodic subscription fee Customers do not download the software and cannot manipulate or control the software 3

4 Conditions necessary for sales and use tax collection obligation Nexus Taxable product 4

5 Potential application of sales tax to SaaS Sales and use tax historically applied to sales and leases of tangible personal property on a destination basis (i.e., the taxable event occurs at the customer s location) Many states now also tax certain services TPP generally includes pre-written software. A number of states now tax electronically delivered software (California does not) State provisions that focus on delivery of TPP as an element of taxation, may not accurately address remotely accessed products (i.e., is SaaS TPP?) Is SaaS leased or being used in the state if hosted out of state? Does the customer control the software? Is the software delivered? 5

6 Where does a transaction in cyberspace occur? Some states originally viewed access to SaaS as taxable based on the location of the server State positions have changed to specify the taxable event as the location of customer use (Utah, Pennsylvania) 6

7 WASHINGTON Statutory solution Tax applies to remote access software used by WA customers Digital automated service also subject to tax Digital automated service defined as any service transferred electronically that uses one or more software applications 7

8 NEW YORK Imposes tax on prewritten software and certain enumerated services The Department of Taxation and Finance has issued a series of rulings treating online transactions that appear to be non-taxable services, as remotely accessed software leases or licenses Control requirement for leases is ignored 8

9 TEXAS Texas taxes a number of services SaaS products likely to be considered taxable data processing services or information services 9

10 CALIFORNIA Does not tax electronic downloads SaaS products generally not taxable 10

11 Other states Many states recognize the difference between software as an end product and software being used by the vendor to provide a service Favorable rulings in Iowa and Kansas respect the delivery requirement 11

12 Taxable product summary States are inconsistent in their interpretation and application of the law Different tax results in different states Be mindful of nexus-creating activities IAAS and PAAS create additional issues 12

13 Multiple points of use Vendor tax collection concerns Exemption certificates Knowledge of customer use in different jurisdictions 13

14 Multiple points of use Customer use tax concerns Apportionment based on user locations May require presentation of an exemption certificate to vendor 14

15 New developments Amazon Click Through Legislation Marketplace Fairness Act 15

16 Income and gross receipts tax issues A number of states have receipts thresholds for nexus (no physical presence required) Gross receipts tax states (e.g., Washington, Ohio) do not require profitability Sourcing may be market or costs of performance. COP provides opportunities to shift income from market state, but adequate records must be maintained to support location of costs incurred to generate income 16

17 David Colker DLA Piper 2000 University Avenue East Palo Alto, CA Office Phone: Hugh Goodwin DLA Piper 2000 University Avenue East Palo Alto, CA Office Phone: Circular 230 Notice: In compliance with U.S. Treasury Regulations, please be advised that any tax advice given herein (or in any attachment) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax penalties or (ii) promoting, marketing or recommending to another person any transaction or matter addressed herein. March