Technology Companies Dispute Sales Tax On ‘Cloud’

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(Host) A number of technology companies are angry that the state is charging a sales tax on business they conduct via what’s come to be known as "cloud computing." VPR’s Kirk Carapezza reports.

(Carapezza) The federal government prohibits states from collecting a sales tax on services that simply provide access to the Internet. But federal law doesn’t address the emerging practice of "cloud computing," which involves transactions that are actually conducted on servers that might be located thousands of miles away. And Vermont does impose a 6 percent sales tax on those transactions that are conducted "in the cloud."

Ted Adler is founder and president of Union Street Media, a web development company in Burlington. Adler says the tax on the cloud limits his business but it also affects all Vermonters.

(Adler) "Farmers use Farmigo. Restaurants use OpenTable. Doctors use online medical records. We are all as a state about to have smart meters on our houses. So the tax on the cloud affects more than the geeko-system of web developers."

(Carapezza) Now if you’re not in the geeko-system and if you’re not sure you understand the cloud, think about how you might upload your pictures and email to Web servers – Web sites like Flickr and Facebook and Gmail – so that you can access them from anywhere. It may seem like magic. You may even take it for granted. But your data is in fact stored in server farms somewhere. That’s the cloud, keeping your data in multiple places so that you’re less likely to lose it.

Frank Cioffi says cloud transactions are not traditional sales.

(Cioffi) "They’re taxing this as tangible personal property, like you own it. And you don’t own the cloud."

(Carapezza) Cioffi is president of the Greater Burlington Industrial Corporation, which runs economic development programs in Chittenden County. In December, he first learned about Vermont’s so-called cloud tax, which was put into place two years ago through a tax bulletin. Cioffi says that’s not the way to impose what he believes was a new tax.

(Cioffi) "And it certainly wasn’t a law that was enacted by the Vermont Legislature. This was done by the Tax Department in a technical memorandum."

(Carapezza) Cioffi and other business leaders say the tax will stifle employment in some of the fastest growing businesses in the state.

Administration Secretary Jeb Spaulding says the Shumlin administration wants Vermont to be known as friendly to high-tech companies. He says the Legislature needs to weigh in.

(Spaulding) "We recognize that small businesses in Vermont are accessing more business via the cloud and we want Vermont small businesses to not be put in a bad situation and have their expenses increase on essentially business-to-business transactions and have to pay a 6 percent sales tax."

(Carapezza) The delivery of products and services via the cloud is an issue that a lot of states are struggling with. Both New York and Massachusetts tax sales conducted in the cloud, but many states are still developing their policies.

For VPR News, I’m Kirk Carapezza.

(Host) And we just wanted to mention that Ted Adler who was mentioned at the start of this report is a member of VPR’s board of directors.

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