In this SFGate article we learn that “the Idaho House Revenue and Taxation Committee has agreed to introduce legislation to clarify that cloud computing services delivered over the Internet aren’t tangible goods subject to sales tax.” This is in reaction to an Idaho Tax Commission memo in October that interpreted a 1993 law stating that software is taxable property, cloud or no-cloud.
States are struggling with taxability issues around cloud computing. One argument is that the way software is delivered is changing to cloud, thus, just as we taxed the sale of software, we should tax software delivered as a cloud service. However, those states that tax cloud-based services may find that businesses change states rather than pay the tax which diminishes the value of cloud computing.
The reality is that cloud computing does provide value, and a clear advantage for emerging small businesses. However, if the government adjusts tax laws to make sure they get their cut, the value that cloud computing provides to businesses goes way down. Moreover, small businesses that benefit the most from public cloud computing are disproportionately harmed.