Washington Tax Law and Cloud Computing Caleb Allen (WA DOR)
Cloud Computing Issues • WA law addressing cloud computing issues. – Three important issues around cloud computing: • Taxability – How WA law addresses cloud computing and other digital products transactions. • Sourcing – How WA law addresses sourcing of digital products transactions including some cloud computing services. • Nexus – How WA law addresses two specific nexus scenarios related to cloud computing.
Taxability
Washington Law • Digital products law addresses items transferred electronically: – Digital goods – Digital codes – Digital automated services (DAS) – Remote access software (RAS)
Digital Goods • Digital goods – SSUTA: digital books, music, and video. – Washington: sounds, images, data, facts or information or any combination thereof • E. g. digital picture, lawn mower engine diagram etc.
Digital Codes • Provides purchaser the right to obtain a digital good or DAS. – Example: digital code inside bottle cap allows the purchaser the right to obtain an MP 3 file.
Remote Access Software • Washington taxes prewritten software – Delivered on tangible media – Digitally delivered – Remotely accessed. • Remotely accessed software (RAS): – Charges for the right to access and use prewritten software where possession is maintained by seller • Regardless of whether the charges for the service is per user, use, license, subscription or other basis.
Digital Automated Services • Introduction: • Unique and broad tax category addressing digital service transactions including some cloud computing. • Digital automated service (DAS) : – “…. any service transferred electronically that uses one or more software applications…” • WA anticipated: – Rapid change in business models – Rapid change in and technology – Rapid change could make digital good and remote access software categories obsolete.
Evolution: Software into Services • T 1 -Gaming software purchased on a CD in a store – TPP = RST • T 2 -Gaming software accessed online: – Remote access software = RST • T 3 Gaming software accessed online PLUS other services: – Real time multiplayer functionality – Chat rooms – World wide tournaments, etc – DAS = RST
Example 2: Digital Good into Services • T 1 -Music purchased on CD in store – TPP = RST • T 2 -Music accessed/streaming online: – Digital good = RST • T 3 -Music access PLUS other service: – Ability search information on music group or song. – Ability to chat with other fans. – Ability to compose songs and create digital files using software tools. – DAS = RST
Digital Automated Services Defined • Definition: – “…any service transferred electronically that uses one or more software applications…” • Definition encompasses many services including some cloud services: – E. g. Computers remotely accessed, controlled, configured etc by software layer. • Also includes other services “provided in the cloud: ” – E. g. Online searchable database.
Sample Exclusions from DAS • Broad imposition makes exclusions from DAS important. – Protect WA business models (e. g. server farms) • Hosting, storage and back up. – Preserve existing industry tax treatment • Data processing. • Telecommunications & internet access. – Tax neutrality for online and offline activities • Primarily human effort (e. g. electronic contract sent via email)
How it Fits Together Remote Access Software Digital Automated Services Service that use software Software The Cloud Digital Goods Books, music, video, data, facts, information
Sourcing
Sourcing • SSUTA general rule in WA applied to DAS/RAS/DG – Business location • Store location (not generally relevant for DAS/RAS/DG? ) – Place of receipt • E. g. physical shipping address (available for DAS/RAS/DG? ) – Address in business records • E. g. accounts receivable address, address in contract. – Address from sale • E. g. Credit card billing address usually available and generally works – “blind form of payment” (e. g. Pay. Pal) no address? – Origin sourcing • Server location may be unknown or movable.
Nexus & Summary
Nexus Safe Harbors • These activities do not create nexus in WA for out of state seller: – Ownership of software or digital good located on server in WA. – Third party activities (e. g. marketplace services) conducted on seller’s behalf: • display of advertising, • order taking or • payment processing.
Summary • Taxability: WA has basic framework and definitions to address cloud computing and other digital product transactions. • Sourcing: SSUTA rule generally works but may create challenges for some digital transactions where information is lacking. • Nexus: two nexus issues resolved.
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