New York Ruling Raises Questions About The Taxation of Cloud Computing Services


When you were a child, lying faceup on a grassy knoll in the yard, staring at the clouds, what did you see? Animals? Faces? Tall ships on the high seas? Or perhaps you felt left out and never understood why people claimed to see images in the clouds? For the past few years, the New York State Tax Department has been lying back (or presumably sitting) in their offices, staring at the digital cloud, and seeing one thing: taxable sales of prewritten software.

But a recent ruling from the New York Division of Tax Appeals may give taxpayers the opportunity to challenge the department’s position regarding the taxability of some cloud computing services, also known as software as a service (SaaS). In Matter of SunGard Securities Finance LLC, an administrative law judge rejected the tax department’s position that SunGard Securities Finance’s Smart Loan service was subject to tax as the sale of tangible personal property, and held instead that SunGard was providing an information service exempt from tax because of the personal and individual nature of the service. In this article, we take a closer look at SunGard and analyze what relief it may provide taxpayers who offer cloud-based services.

Originally Published in State Tax Notes - June 23, 2014

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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