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April 19, 2010 | Authored by: Vindicia Team

SaaS and Intangible Sales Tax, LA, NY, CO edition

As the budget pain continues in state government, a couple recent events are noteworthy.

First, New York State has taken the position in an advisory opinion that a SaaS offering is taxable when software is delivered in a hosted model. Advisory opinions aren’t fully binding and the application in question was voice related which may have complicated the analysis so this may be an outlier, but it is troubling that a SaaS provider with New York nexus may be required to remit sales tax for revenue generated from New York residents. My reading of the opinion is that gaming companies have to spend some time with counsel figuring out whether their service is the software or just post software access services which generally haven’t been taxed by New York in the past. Virtual goods models should be untaxed based on Apple’s advisory opinion, but the scope of the new opinion is troubling.

In Revenue Ruling No. 10-001 the Louisiana Department of Revenue has determined that not only are non executable downloads like books, music, movies, or AV updates taxable, but is now attempting to take the position that software delivered in the SaaS model is also taxable. Reviewing Louisiana’s logic, it would appear that true SaaS offerings that do not have client software outside of the browser are not actually taxable, but that the DOR is attempting to create a broad interpretation that states that the generated html in the users browser constitutes the software.

Further, Colorado is in process with emergency regulations that look on first blush to turn CO from a SaaS/intangible goods friendly state into a problem child for everyone in all 50 states. Colorado has come up with the unique idea that they will require all vendors, regardless of nexus to email out how much use tax is due on their tangible sales or sales of executable downloadable software. In addition, Colorado has extended the definition of tangible software to include electronic transfer of the box contents equivalent. For now it appears that Colorado has not extended sales or use tax to SaaS or non-executable downloads. We will be monitoring those developments closely and I expect to post more on the Colorado use tax situation including what will almost certainly be litigation over the far reaching impacts of Colorado’s new use tax notification law due to its extra territorial effects.

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Vindicia Team

Vindicia Team

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