Some Sunshine in Vermont: Sales Tax on Cloud Computing Services

I recently authored an article in State Tax Notes entitled “Let the Sunshine In: The Age of Cloud Computing”, which describes the murky area of state taxation of cloud computing services.  On May 24, 2012, Vermont brought some sunshine to this cloudy area. 

Vermont Governor Peter Shumlin signed a bill that temporarily exempts charges for pre-written software accessed remotely.  This is knows as “software as a service” or “SaaS.” 

In particular, the legislation prohibits the Vermont Department of Taxes from assessing sales and use taxes on charges for SaaS.  This prohibition is for the period of January 1, 2007 through June 30, 2013.  The law also provides that any taxes paid during this period may be refunded, as long as the statute of limitations has not expired and the claimant provides proper documentation. The legislation would cause the abatement of any pending assessments for taxes on charges for SaaS during this period.

The new law does not affect the tax on digital products.  Thus, if a Vermont customer were to download software or music, the customer would be liable for the Vermont sales and use tax. 

In addition, the Governing Board for the Streamlined Sales Tax Agreement is scheduled to have a policy discussion regarding taxation of cloud computing at its meeting in August.  It is likely that more and more states will take up the issue of sales tax on the various types of cloud computing services.