Iowa Issues Policy Letter on Cloud Computing

The Iowa Department of Revenue has issued a policy letter addressing the taxability of hosted software and related training services. The taxpayer sells software to customers throughout the United States. The software is located on servers outside of Iowa and is accessible by customers only through the internet. The software is not downloaded by or delivered to the customer, and no transfer of title or possession takes place. The taxpayer also provides training services to customers either in-person at the customer’s location, or via web-based programming. Training is optional, and the charge is assessed separately. The Department determined that the hosted software and training services constitute cloud computing services, as defined by the U.S. Department of Commerce’s guidelines. Because Iowa tax law does not address cloud computing, the Department analyzed the services under existing code sections. The Department concluded that the hosted software is not taxable in Iowa. It did not constitute the sale of tangible personal property or prewritten computer software because it was delivered to customers via the internet and only accessible online. The taxpayer’s training services are also not subject to sales or use tax because training services are not specifically enumerated taxable services in Iowa. (Iowa Department of Revenue Policy Letter 12300002, Jan. 11, 2012)

Posted on March 26, 2012