Cloud Provider Commentary

Jun 1 2012   12:12PM GMT

The cloud: A tax-free zone?

kdeyermenjian Kara Deyermenjian Profile: kdeyermenjian


As the saying goes, taxes are one of life’s few certainties — but just how certainly will they be applied in an information-driven economy? If the state of Vermont’s back-and-forth on a “cloud computing tax” is any indication, it seems the jury may still be out on the matter.

Like many states across the country, Vermont is struggling to reconcile its desperate need for revenue with a political climate that’s hostile to new taxes. Earlier this year, however, the state’s Tax Department implemented a so-called cloud computing sales tax after deciding that “there was little difference between downloading a program and using the cloud, and it sent retroactive tax bills with penalties to a number of businesses,” according to Vermont Public Radio.

The tax, which reportedly brought $2 million into the state’s coffers, put a huge dent in businesses’ finances and sparked a public outcry from business owners. After several weeks of debate, state lawmakers recently stepped in to denounce the policy, told the Tax Department to issue full refunds to companies that had previously paid the tax and put a year-long moratorium on the measure. Vermont Gov. Peter Shumlin told VPR that he is begrudgingly agreeing to the moratorium because it’s in a bill that contains other tax credits he wants passes; he would prefer to eliminate the controversial tax altogether and vowed to do so if re-elected.

Because this tax was responsible for cloud providers’ Vermont-based customers receiving retroactive sales tax bills as high as $96,000, the news of a refund and Vermont’s next steps are surely being watched by other cash-strapped states. That means cloud providers everywhere may want to keep an eye on this issue.

Cloud providers don’t want disgruntled customers driven away by outlandish tax bills, so the refund will be welcome news for them — but at what cost?

Although it’s undeniable that customers and providers will be happy about the refund, Vermont is losing out on valuable revenue needed to support its services. This grey area concerning whether remotely-delivered, information-driven products are taxable entities will undoubtedly continue to spark debate as the market continues to advance and the state is blocked from receiving its growing “cut.”

On the other hand, after the Vermont Legislature called for a special study of this issue, a one-year moratorium of the tax was also implemented. This moratorium created a competitive opportunity for the state of Vermont by offering a tax-free location for cloud services customers.

Is it possible losing out on a “cloud computing tax” could benefit the state by attracting an influx of technology businesses and technology?

That’s what Trevor Crist believes, according to VPR. Crist is president of Inntopia, which provides online reservation services for the travel industry. He hosts Inntopia’s services in a cloud provider’s Montreal data center, according to Stowe Today, and he received a $96,000 tax bill from the state for using those cloud services.

Crist told VPR that he hopes the moratorium gives Vermont an upper hand in attracting tech businesses and jobs. Even if Vermont loses out on the sales tax revenue, it still has a chance to enhance the state’s economy.

With refunds on the horizon, nonetheless, it is important for providers with Vermont-based customers to be aware of and assist customers through the refund process. Cloud providers already face a lot of barriers to adoption. Depending on what happens here, the taxman may become another one.

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