Cloud Taxes

Do you rely on a cloud hosting company? If you do, how would you feel about the implementation of a cloud tax?

If you live in Massachusetts, this could be the case starting fiscal year 2014. Massachusetts Governor, Deval Patrick, is proposing to implement a tax on what he terms “canned software,” which includes not only custom-designed software, but it also includes cloud computing services as well.

It's expected to boost revenue for the state, of course, but will it ultimately hurt small businesses? And will it spread to the rest of the nation if the bill does well?

Cloud Taxes Coming To A State Near You: It Already Has

There are 14 additional states that have some form of cloud tax already in place. New York and Ohio are among a group that taxes cloud computing as a whole. Utah and Chicago only tax uses of the cloud that involve software and the transfer of its possession and control, along with computing services.

Cloud Taxes Coming To A State Near You: Internet Taxes Already Being Discussed Elsewhere

That's right, the US Senate is already discussing a law that would give states the right to tax Internet retailers. The plan: if a business acquires over $1 million in gross receipts, states would be able to collect taxes on those purchases from the retailer. It does not mention cloud computing specifically, but points to the fact that the Internet is being explored as a tax revenue option.

Vermont lawmakers, business and software company representatives, and tax officials voted to exempt businesses from a cloud computing services tax. Those in favor say it is unwise to refuse to tap into this resource, estimated to bring an additional $2 million the first year if it were implemented.

Opponents of a tax on cloud computing services in VT say businesses would suffer, leading to higher unemployment numbers, not to mention the fact it could drive business away from VT altogether.

Idaho has also passed an exemption to cloud taxes in similar fashion.

Cloud Taxes Coming To A State Near You: Why The MA Proposal Is Different

What makes the Massachusetts proposal different from the VT proposal? It would tax small businesses, such as a children's gymnastics studio, that have web sites associated with their business.

Cloud Taxes Coming To A State Near You: Is This A Good Idea?

It is bad for the small business that isn't profiting from their website whatsoever, that's a fact. Why tax something that is generating no revenue? Yes, the website may help drum up some additional business, but if the main purpose of your website is to offer general information of the services you offer and nothing more, why tax the website?

Taxing those who actually generate revenue is a good idea. Some online retailers pay little, if any, sales taxes, but it will be hard to figure out which ones do and don’t generate enough revenue to survive with a high tax. Although new tax revenue sources are a good idea, the government must tread carefully in order to ensure fairness.

What do you think of cloud taxes? Should sites be taxed? Is this fair?

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