Washington Tax Law and Cloud
Computing
Caleb Allen (WA DOR)
Cloud Computing Issues
• WA law addressing cloud computing issues.
– Three important issues around cloud computing:
• Taxability
– How WA law addresses cloud computing and other digital
products transactions.
• Sourcing
– How WA law addresses sourcing of digital products
transactions including some cloud computing services.
• Nexus
– How WA law addresses two specific nexus scenarios related to
cloud computing.
Taxability
Washington Law
• Digital products law addresses items
transferred electronically:
– Digital goods
– Digital codes
– Digital automated services (DAS)
– Remote access software (RAS)
Digital Goods
• Digital goods
– SSUTA: digital books, music, and video.
– Washington: sounds, images, data, facts or
information or any combination thereof
• E.g. digital picture, lawn mower engine diagram etc.
Digital Codes
• Provides purchaser the right to obtain a digital
good or DAS.
– Example: digital code inside bottle cap allows the
purchaser the right to obtain an MP3 file.
Remote Access Software
• Washington taxes prewritten software
– Delivered on tangible media
– Digitally delivered
– Remotely accessed.
• Remotely accessed software (RAS):
– Charges for the right to access and use prewritten
software where possession is maintained by seller
• Regardless of whether the charges for the service is per
user, use, license, subscription or other basis.
Digital Automated Services
• Introduction:
• Unique and broad tax category addressing digital service
transactions including some cloud computing.
• Digital automated service (DAS) :
– “….any service transferred electronically that uses one or more
software applications…”
• WA anticipated:
– Rapid change in business models
– Rapid change in and technology
– Rapid change could make digital good and remote access software
categories obsolete.
Evolution: Software into Services
• T1-Gaming software purchased on a CD in a store
– TPP = RST
• T2-Gaming software accessed online:
– Remote access software = RST
• T3 Gaming software accessed online PLUS other
services:
–
–
–
–
Real time multiplayer functionality
Chat rooms
World wide tournaments, etc
DAS = RST
Example 2: Digital Good into Services
• T1-Music purchased on CD in store
– TPP = RST
• T2-Music accessed/streaming online:
– Digital good = RST
• T3-Music access PLUS other service:
– Ability search information on music group or song.
– Ability to chat with other fans.
– Ability to compose songs and create digital files using
software tools.
– DAS = RST
Digital Automated Services Defined
• Definition:
– “…any service transferred electronically that uses one
or more software applications…”
• Definition encompasses many services including
some cloud services:
– E.g. Computers remotely accessed, controlled,
configured etc by software layer.
• Also includes other services “provided in the
cloud:”
– E.g. Online searchable database.
Sample Exclusions from DAS
• Broad imposition makes exclusions from DAS
important.
– Protect WA business models (e.g. server farms)
• Hosting, storage and back up.
– Preserve existing industry tax treatment
• Data processing.
• Telecommunications & internet access.
– Tax neutrality for online and offline activities
• Primarily human effort (e.g. electronic contract sent via
email)
How it Fits Together
Remote Access
Software
Digital Automated
Services
Service that use software
Software
The Cloud
Digital Goods
Books,
music,
video,
data, facts,
information
Sourcing
Sourcing
• SSUTA general rule in WA applied to DAS/RAS/DG
– Business location
• Store location (not generally relevant for DAS/RAS/DG?)
– Place of receipt
• E.g. physical shipping address (available for DAS/RAS/DG?)
– Address in business records
• E.g. accounts receivable address, address in contract.
– Address from sale
• E.g. Credit card billing address usually available and generally
works
– “blind form of payment” (e.g. PayPal) no address?
– Origin sourcing
• Server location may be unknown or movable.
Nexus & Summary
Nexus Safe Harbors
• These activities do not create nexus in WA for
out of state seller:
– Ownership of software or digital good located on
server in WA.
– Third party activities (e.g. marketplace services)
conducted on seller’s behalf:
• display of advertising,
• order taking or
• payment processing.
Summary
• Taxability: WA has basic framework and
definitions to address cloud computing and
other digital product transactions.
• Sourcing: SSUTA rule generally works but may
create challenges for some digital transactions
where information is lacking.
• Nexus: two nexus issues resolved.