By Jessica Kerner and Jack Trachtenberg

The Missouri Department of Revenue determined that a company’s telecommunications services provided to customers on its cloud computer network are subject to sales tax. The company’s cloud network is hosted on servers located outside of the state, and customers access the network through public telecommunications lines and through the customers’ internal network. Customers separately purchase the necessary hardware and internet connection. The services provided to customers through the cloud network include voice, video, messaging and conferencing. The Department determined that the company is providing taxable “telecommunication services” because it transmits information through its services that direct and control its customers’ hardware and because it stores messages on its server, which are taxable events in Missouri. The Department also noted that customers would not be able to use their equipment without the company’s software and hosting unless the customer was willing to engage another telecommunications company or built its own in-house system. This ruling suggests the Department believes that the provision of software that provides switching or routing functions constitutes the provision of telecommunications for sales tax purposes. Taxability of Telecommunications Services, L.R. 7248, Mo. Dept. of Rev. (May 24, 2013).