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
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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
203.323.2400
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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
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