Increased taxation can also remove the costs savings of transitioning to the cloud, since your business could get a surprise tax bill or tax-based price increase. A PricewaterhouseCoopers report notes, "IaaS and PaaS are enjoying unprecedented growth. Unfortunately, tax benefits and detriments are often overlooked or not given sufficient consideration until after a cloud infrastructure strategy has been implemented. As a result, a company can be blindsided by unintended tax assessments and a surprisingly expanded state tax footprint."
These new laws also sow confusion, since definitions of what services will be taxed vary state by state, and the location of the cloud is by nature nebulous. As InfoWorld's David Linthicum observes, "a New York-based company may purchase server space and cloud-based software from a Texas-based company. That's relatively straightforward, except that the Texas company may have servers in North Carolina and California, while the New York company may have satellite offices in Illinois, Florida, and Kentucky that use the server space. Who gets the tax bill, and who gets the revenue? Good luck with that one."
Stephen P. Kranz, a partner at D.C. law firm McDermott Will & Emery concurs, saying that "understanding what portions of the cloud are taxable and where to source these transactions is complex and requires a deep understanding of state tax law. Vendors and purchasers of cloud-based services are equally burdened by the lack of clarity and potential financial exposure that stems from failure to comply with the law."
The Massachusetts Taxpayers Foundation has issued a strong statement against the governor's tax proposal, calling it a "Pandora's box" that will create "numerous problems" and seriously undercut the state's competitiveness.
As Wired magazine observes on the taxing trend: "This is great for the lawyers, and possibly an application developer or two, but it's terrible for IT."
This article, "The taxman cometh for cloud services," was originally published at InfoWorld.com. Get the first word on what the important tech news really means with the InfoWorld Tech Watch blog. For the latest business technology news, follow InfoWorld.com on Twitter.