cloud computing sales tax in new york and new jersey

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  • 8/13/2019 Cloud Computing Sales Tax in New York and New Jersey

    1/2

    Tax Notes Newsletter

    Cloud Computing: New Jersey and New York Take

    Divergent Paths in Sales Tax Treatment

    By Sandy Weinberg, Principal

    It is no surprise that state tax departments are scrambling to define their positions

    regarding sales taxation of cloud computing software and services. States often are

    behind the curve when trying to keep up with market or technology changes. For

    example, as the U.S. began shifting to a service economy, sales tax laws, originally

    addressing tangible personal property sales, lagged behind providing guidance regarding

    the sales of services. (Many states lists of taxable services are still being updated.)

    States are now forming positions regarding the sales tax treatment of cloud computing,

    and not all states agree. Generally, cloud computing occurs when customers use software

    that is hosted by a seller that owns, operates, and maintains the software. The software is

    not transferred (through tangible or digital media) to the buyer as it is typically housed on

    the sellers servers. Customers do not have the right to download, copy, or modify the

    software. Rather, they merely receive access to the software.

    New Jersey and New York are far apart with respect to sales and use tax treatment of

    cloud computing sales.

    New Jersey generally defines taxable tangible personal property to include prewritten

    software delivered electronically. However, the New Jersey Division of Taxation stated

    that because a retailer does not transfer any software to its customers, cloud computing

    transactions do not fit within New Jerseys definition of tangible personal property or

    enumerated taxable service. [N.J. Div. of Taxation Tech. Bulletin TB-72 (July 3, 2013)] As a

    result, New Jersey does not impose sales tax on cloud computing sales.

    New York, on the other hand, treats cloud computing transactions differently. The New

    York Department of Taxation and Finance issued an advisory opinion that cloud computing

    sales are taxable licenses to remotely use prewritten software. [N.Y. Dept. of Taxn. and

    Fin., TSB-A-11(17)S (June 1, 2011)] In short, it appears that New York subjects cloudcomputing sales to sales tax.

    However, a position may exist that a particular transaction is not subject to sales tax in

    New York. First, cloud computing services are not enumerated taxable services.

    Therefore, the question becomes whether the taxpayer is paying for a software license or

    a service. Second, New York tax law requires that there be a transfer of possession or

    control for a customer to receive a taxable license of software. As a result, a position

    exists that many cloud computing transactions do not transfer the needed possession or

    Sandy Weinberg

    Principal

    [email protected]

    203.323.2400

  • 8/13/2019 Cloud Computing Sales Tax in New York and New Jersey

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    control, and are not subject to New York sales tax. Therefore, taxpayers may want to

    negotiate a slightly different cloud computing agreement or scrutinize their cloud

    computing transactions in greater detail prior to conceding that all cloud computing sales

    are subject to New York sales tax.

    In a number of states, as in New York, the facts at issue may change a conclusion since a

    particular transaction may not fit squarely within, or without, the states publishedguidance. For more information, or to discuss the sales tax treatment of your specific

    cloud computing, or other, transaction, do not hesitate to contact Sandy Weinberg at

    [email protected] or your OConnor Davies tax professional.About OConnor Davies:

    O'Connor Davies, LLP is a full service Certified Public Accounting and consulting firm that has a long

    history of serving clients both domestically and internationally and providing specialized professional

    services of the highest quality. With roots tracing to 1891, seven offices located in New York, New

    Jersey and Connecticut, and approximately 400 professionals including 70 partners, the Firm

    provides a complete range of accounting, auditing, tax and management advisory services.OConnor Davies is ranked as number 36 in Accounting Today's2013 "Top 100 Firms" in the United

    States. The Firm is also within the 20 largest accounting firms in the New York Metropolitan area

    according to Crain's New York Businessand the Westchester and Fairfield County Business Journals.

    OConnor Davies, LLP is a member firm of the PKF International Limited network of legally

    independent firms and does not accept any responsibility or liability for the actions or inactions on

    the part of any other individual member firm or firms.

    IRS CIRCULAR 230 DISCLOSURE:To comply with IRS regulations, we are required to inform you that

    unless expressly stated otherwise, any discussion of U.S. federal tax issues in this correspondence

    (including any attachments) is not intended or written to be used, and cannot be used, (i) to avoid

    any penalties imposed under the Internal Revenue Code, or (ii) to promote, market, or recommend

    to another party any transaction or matter addressed herein.

    Our Firm provides the information in this e-newsletter for general guidance only, and it does not

    constitute the provision of legal advice, tax advice, accounting services, investment advice, or

    professional consulting of any kind.

    Contact:

    New York, NY

    (midtown)

    212.286.2600

    New York, NY

    (downtown)

    212.867.8000

    Harrison, NY

    914.381.8900

    Stamford, CT

    203.323.2400

    Paramus, NJ

    201.712.9800

    New Windsor, NY

    845.220.2400

    Wethersfield, CT

    860.257.1870

    mailto:[email protected]:[email protected]