Web Hosting Companies Dodge Tax in New Jersey

Web Hosting Companies Dodge Tax in New JerseySetting up a cloud hosting service? You may want to think about planting your company flag in New Jersey. The New Jersey Division of Taxation recently stated that many cloud services are not subject to tax. This news came as a welcome surprise to cloud service providers operation in the state.

Various other states have reviewed taxation laws, and now including cloud hosting services as a form of software sale. Thus, those services are subject to tax in many states – but not in New Jersey.

Web Hosting Companies Dodge Tax in New Jersey: The Ruling

The state of New Jersey has found that SaaS (Software As Service) is not subject to tax because it is not sold in a tangible form. Further, this type of software is not downloaded to a user's computer, and no title for the software is sold when users purchase cloud services, the state found.

As such, the state has issued a notice that any cloud service software sold in that tangible form is subject to tax. Basically, it can all be broken down like this: if you sell cloud software in physical form, transfer titles or licenses, and provide consumers with a copy of that software, your business can be taxed. Otherwise, you won't have to face taxation in the state of New Jersey.

Web Hosting Companies Dodge Tax in New Jersey: What About Web Hosting Services?

In addition to not finding SaaS services taxable, the state of New Jersey will also not be taxing any web hosting or data hosting services that are based in the state of New Jersey. Once again, the state has found that these services do not actually sell any tangible items, so they cannot be legally taxed in the state.

Here's a bit of advice: if you are thinking about setting up a cloud-based service, a web hosting company, or any other kind of data hosting service, go for the Garden State. Or, make a list of those states that do not tax such services (Texas is another state that cheap web hosting companies can call a tax-free home).

As the decision to tax, or not to tax, certain web hosting companies continues across the United States, states like New Jersey are proving that taxes are not as certain as death – contrary to the popular saying.

Are web hosting companies taxed where you live? Would you consider moving your company to New Jersey to avoid tax?

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