Georgia Discusses Taxability of Cloud Computing

Georgia has issued a letter ruling discussing the sales and use tax treatment of cloud computing services. The service in question was to support customers’ telecommunications equipment related to voice, video, and messaging functions. Customers would not receive tangible personal property as part of the service purchase. At no time is any software or application transferred to the customer and the customer cannot access the hosted software code nor manipulate the software in any way. The servers hosting the hardware and software used to run the service were to be located outside Georgia. The customers accessed the services via their own internet, network, or telecommunications connections. Georgia sales and use tax would not apply to the business’s sale of cloud computing services or to the hosting of customer-provided software applications. Additionally, the services are not taxable telecommunications services because the taxpayer did not hold a certificate of authority from the Georgia Public Service Commission or sell local exchange or cellular telephone service. Since purchasers don’t gain title, possession or control of the seller’s software or hardware, the services are not taxable sales of tangible personal property. If the provider does make retail sales of tangible personal property to customers in Georgia, it would be required to collect sales and use tax on those sales. Since the provider is the end user, it is liable for sales or use tax on its purchases and uses of tangible personal property used to provide the services. For sales and use tax purposes, the taxpayer’s services are not considered as being provided within Georgia.This seems to indicate that Georgia is following a server location rule since the services are not deemed to occur in Georgia. (Letter Ruling LR SUT-2014-05, Georgia Department of Revenue, June 9, 2014, released September 10, 2014)

Posted on September 29, 2014