How do states tax the cloud? There’s no consensus…yet.

October 5, 2014

I just discovered that while I was at an out-of-town conference, the hubby went to a sports car race. On his own

I must admit that I was a little hurt. Sports are a big part of our more than 30 years together.

One of my best birthday presents ever from the hubby was Washington Capitals season tickets. We spent every Sunday during the MLB season at Baltimore Orioles games. Most of our vacations include attendance at some sporting event.

That he went to the Circuit of the Americas without me was sort of a surprise and a little bit of a bummer. That's probably why he "forgot" to tell me.

So how did I discover the hubby's solo sports jaunt? I wasn't spying on him. Honestly! I found out thanks to the cloud.


Cameron Diaz and Jason Segel freaking out because their characters' personal video went up to the cloud.

Busted by the cloud: Basically, I agree with Jason Segel's character in "Sex Tape" that nobody understands the cloud. I'm still a bit confused by it.

I have, however, found it very useful. And not just for spousal tracking.

I have way too many iTunes that would jam up my phone if it weren't for the cloud. I also get lots more PC, laptop and phone back-up and storage space for less money thanks to the cloud.

This mysterious computing component, however, did come in handy in finding out how the hubby spent one of the four days I was at the FinCon14 personal finance bloggers' conference in New Orleans.

He took photos with his phone of the garages, pits and the two races at the Circuit of the Americas track. Those snapshots then were synched from the cloud to the iPad we share.

When I signed onto the tablet this weekend, the hubby was busted by the cloud.

Taxing the nebulous cloud: Of course, the cloud has implications far beyond how couples keep an eye on each other when they're apart.

As more companies and individuals take advantage of cloud computing, states' financial officers also have their heads in the clouds. Specifically, they are trying to figure out how this new type of computing and communication could provide some much needed state tax revenue.

The growing cloud system is an inviting tax target. But it's also very elusive.

Not only are state legislatures and tax offices typically slow in amending their statutes and regulations to address taxation of digital products, but cloud computing poses some new and specific problems.

An analysis by Jennifer Jensen, originally published in the December 2012 issue of the AICPA Tax Advisor and reprinted by the U.S. division of PricewaterhouseCoopers, notes that the global networks upon which cloud computing is predicated are borderless.

That creates major jurisdiction problems for tax collectors, since sales and use tax assessments are based on location. Jensen elaborates:

"If the location of a cloud cannot be pinpointed, which state's laws apply in taxing the cloud? If a state taxes at the point of use, what if services are free at the point of use? If tax is based on the location of the servers or the office of the cloud computing provider, will providers simply move to the lowest-tax jurisdiction? How does a provider or purchaser avoid being taxed in two locations simultaneously when states apply different sourcing rules for sales and use tax purposes?"

Some states say yes, others no: Those were among the questions raised at last month's Institute for Professionals in Taxation's Sales Tax Symposium in Washington, D.C.

Several states have recently published administrative guidance on the taxability of cloud services, reports Tax Analysts. Some have opted for no taxation, but two states — Ohio and Utah — have deemed at least some cloud computing services taxable.

It's going to get much messier in the computer cloud and tax offices before this tax sky clears.

"Other states will continue to debate the taxation of cloud computing, but it's not going to be an easy discussion," writes Cara Griffith at the Tax Analysts Blog. "Cloud computing is borderless, so location is irrelevant — it doesn't matter that a company is in Nevada, a software user in New York, and the servers on which the company runs its application in Texas. Yet sales and use taxation is predicated on location. Expecting the two to play nicely together may be a pipe dream. But until reality sets in, taxpayers must continue to monitor the ways in which states try to shoehorn cloud computing into existing laws."

The bottom line: Enjoy your tax-free cloud computing — and tracking of your husband or wife! — while you can. I'm willing to bet that more states than not will at least try to tax the cloud.

You also might find these items of interest:

Share:

The More Tax Posts tab at the top of this page will take you to, well, more tax posts. You also can search below for a tax topic. 

Latest Posts
6 tax moves to consider this June

June 3, 2026

Definitely take a break this June. But taxes don’t take vacations. So, you also should…

Read More
Tax Season 2026 Continues!

We made it. Tax Day 2025 is finally over. For most of us. When the filing season started on Jan. 26, millions who were expecting refunds filed immediately. Most of us got our returns to the Internal Revenue Service by April 15. But plenty of taxpayers also got extensions. They are looking at an Oct. 15 filing deadline.

Those procrastinating filers aren’t a problem. In fact, the IRS appreciates taxpayers who take time to fill out their 1040 forms correctly. It also is grateful that tax submissions are spread out a bit, especially now that the IRS is a leaner agency. Processing returns is easier when they arrive throughout the year instead of in massive bunches.

But enough about Uncle Sam’s tax collection issues. The focus now is on all y’all who filed for extensions, giving you another six months to complete your return. Since your new mid-October due date will be here before you know it, let’s get started now on meeting it.

The ol’ blog is here to help you finish up your extended Form 1040. You can start with January’s tax tips page, which has links to the rest of the year’s tips by-month collections. You also can peruse various tax categories for more tailored advice by clicking on the More Tax Posts drop-down menu at the top of this (and every) page.

And to make sure you don’t miss your new filing deadline, the count-down clock below will let you know just how much time you to file by Oct. 15. At the latest.e. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

Comments