By Jessica Kerner and Pilar Mata
The Georgia Department of Revenue determined that a company’s cloud-based applications and related services are not subject to Georgia sales and use tax. The company maintains and operates hardware and software on servers located outside of Georgia that it uses to support its customers’ telecommunications equipment, including voice, video, messaging, presence, audio, web conferencing, and mobile capabilities. The company’s customers provide their own telephone equipment and access the company’s cloud applications through the customers’ existing telecommunications, Internet, or network connections obtained through third parties. The Department concluded that cloud-based applications and hosting services are not subject to sales and use tax because Georgia does not tax these services. Moreover, the company’s services are not taxable telecommunications services because the company does not sell local exchange or cellular telephone services, which are the only telecommunications services subject to Georgia sales and use tax. The Department also ruled that the company’s purchase of hardware and software for the provision of such cloud-based services was not a sale for resale because the customers do not receive title, possession, use or control of the company’s hardware or software. Ga. LR SUT-2014-05 (June 9, 2014).
The Department’s determination is the latest in a series of conflicting rulings issued by other states based upon the same or similar facts, including:
- Colorado (Colo. Priv. Ltr. Rul. No. PLR-13-006 (Sept. 18, 2013) (Taxpayer is providing a taxable intrastate telephone service).
- Illinois (Ill. Gen. Info. Ltr. ST 13-0074-GIL (Nov. 26, 2013) (Service is not a telecommunications service).
- Missouri (Mo. Priv. Ltr. Rul. No. LR 7248 (May 24, 2013) (Service is a taxable telecommunications service). (See our previous coverage here: https://www.stateandlocaltax.com/noteworthy-cases/missouri-cashes-in-on-the-cloud-telecommunication-companys-cloud-services-subject-to-sales-tax/)
- New Mexico (N.M. Rul. No. 401-13-2 (June 26, 2013) (Taxpayer is selling a license to use hardware and software subject to gross receipts tax).
- Ohio (Ohio Tax Opinion No. 14-0001 (Feb. 4, 2014) (Service is a taxable data processing service).
- Utah (Utah Priv. Ltr. Rul. No. 13-003 (Dec. 4, 2013) (Taxpayer is selling the use of prewritten computer software, which is taxed as tangible personal property).