A legislative study committee is looking at whether the state sales tax should be extended to software that is accessed remotely.
It’s called cloud computing. And the challenge for lawmakers is to make tax policy catch up with technology.
The briefing for the committee included a presentation literally entitled Cloud Computing 101.
Robert Snapp of the department of computer science at the University of Vermont took the panel on a quick tour of data centers and server farms owned by Google, Amazon and other companies.
This is the physical part of the cloud: gigantic racks of computers where numbers are crunched, data is stored, and information is processed. The data centers are energy hogs – they account for 1 percent of the electricity consumed in the country. Snapp explained that the cloud’s impact on the economy is immense and growing.
"A small or a large company does not need to purchase the hardware, nor hire the employees to maintain the hardware, or the software for that matter," Snapp says. "Instead of spending on capital, they can cost this as operating costs."
But the shift in technology has a big impact on tax revenues. If businesses buy software or download it onto their computers, they pay a 6 percent state sales tax. But should they pay if they access the same software on the cloud?
Last year, the state Tax Department began to apply the sales tax to cloud purchases, and sent retroactive bills to businesses. But then the Legislature stepped in, and imposed a moratorium on the cloud tax until July of 2013.
Meanwhile, the study committee was charged with coming up with recommendations. So it heard from Washington state, which taxes remotely accessed software.
Dylan Waits is senior policy counsel for the Washington state department of revenue. He suggests any tax policy should be technology neutral.
"The goal that our legislature put as one the highest priorities in any legislation was to try to focus on something that would treat the industry or the delivery method the same," he says. "So that whether you were buying the CD ROM, you were downloading the song, you were streaming the song – any of those services that you were buying or songs you were buying they would be taxed in a neutral way, technology-wise."
A business lobbyist urged Vermont lawmakers to go slow on taxing the cloud. Scott Mackey of KSE Partners says companies that buy or sell software are nervous.
"Moving the lines about what’s taxable and what isn’t, we need to know about it in advance so that’s very important to us," he says. "And then when we sell (software), I mean, our biggest nightmare is that we should have been collecting a tax, and we didn’t and now because we couldn’t collect it from our customers, suddenly we have a big liability. So we need clarity on both ends."
The committee will meet twice before January to come up with specific recommendations for the Legislature.