The Mississippi Department of Revenue recently proposed a rule expanding the state’s sales tax to cloud computing.

The proposed amendments to the provisions regarding taxable computer equipment and services define “cloud computing” as “the delivery of computing resources, including software applications, development tools, storage, and servers over the Internet.” The term “cloud computing” includes the software as a service model (“SaaS”), platform as a service model (“PaaS”), infrastructure as a service model (“IaaS”), and similar service models.

The definitions of SaaS, PaaS, and IaaS, in the proposed rule are as follows:

  • “Software as a Service” is software hosted and maintained by a third-party provider and delivered to customers over the internet as a service. The provider hosts and maintains the databases and code necessary for the application to run, and the application is run on the provider’s servers.
  • “Platform as a Service” is a cloud computing model where a third-party provider delivers hardware and software tools to users over the internet. The provider hosts the hardware and software on its own infrastructure.
  • “Infrastructure as a Service” is a cloud computing model that delivers fundamental computing, network, and storage resources to consumers on-demand, over the internet.

In its filing notice, the Department states that the rule is intended to “clarify the tax treatment of computer software sales and services when delivered through cloud computing.” However, the rules go beyond a mere clarification of the state’s existing treatment of SaaS and instead change the state’s tax position on these services. Accordingly, the amendments remove a provision in the current regulation that states: “software maintained on a server located outside the state and accessible for use only via the Internet is not taxable.” Miss. Admin. Code 35.IV.5.06(300).

The proposed rule does not contain an effective date, and it is unclear whether the Department will seek to apply it retroactively.

Prop.Miss. Admin. Code 35.IV.5.06