When are cloud computing services taxed and when are they not? It’s a question that many states across the country are tackling, and Massachusetts
is the latest to rule on the issue.
The Bay State — which some call “Taxachusetts” — issued a ruling this month that falls in line with what a handful of other
states have found: Cloud-based software as a service (SaaS) is taxable in certain circumstances when a license is needed to
run the program and a Massachusetts resident consumes the service. If the software is open source or available for free, then it is not taxable, the state’s Department of Revenue ruled.
BACKGROUND: Cloud services face taxing dilemma
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Kelley Miller of the law firm Reed Smith, who specializes in technology law and specifically tracks how states have been enforcing
cloud taxes, says it’s been a tough issue for states. The DOR says in its ruling that the market is evolving “at a rapid pace.”
Traditionally tax laws just don’t work for this new era of cloud computing, she says, because there is not a tangible transaction
of a disc or piece of hardware. Massachusetts seems to
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