Why Cloud Matters to Tax

  • February 25, 2015

Like every other function in the company, tax departments are hearing and thinking a lot more about the cloud right now.

These thoughts and discussions will not let up any time soon, and they may never stop, asserts Tax Analysts editor Cara Griffith. “Businesses aren’t just implementing cloud computing as an add-on to their current business technology strategy,” Griffith writes in an article she contributed to Forbes, “they’re changing their technology strategies to use cloud computing.”

Vertex has witnessed a similar dynamic in our work with global organizations and their tax departments. This shift toward cloud solutions should inspire all tax professionals to:

  1. Develop a basic understanding of what the cloud means, and what it means for their companies; and
  2. Understand how cloud technology can help tax functions.

Griffith shared the first basic point, that the cloud “is not a singular place any more than the Internet is. The cloud is a shared infrastructure that works like a utility. Businesses pay only for what they need, upgrades are automatic, and scaling up or down is easy.”

For tax departments, the benefits of the cloud are numerous. These advantages include cost savings on hardware, database, operating systems, and IT-management, as well as stronger disaster recovery and business continuity management capabilities.

The bottom line is, tax professionals need to strengthen their cloud knowledge. Griffith points to one more reason to monitor cloud developments: the debate on the taxation of cloud computing. “Interestingly, of nine states that have recently issued administrative guidance on the taxability of cloud computing services, only two have found the services taxable,” she reports. “The remaining seven have determined cloud computing is not taxable.”
Although these varied and ongoing discussions affect some industries more than others — for example, business software — they raise sales and use tax issues that could have ripple effects on other forms of borderless business activities.  

Cloud computing is certainly compelling to all parts of the organization, but can be even more compelling to tax.

To learn more, check out Griffith's article on cloud computing or this comprehensive overview from EY on cloud taxation, issues and impacts.

Please remember that the Tax Matters provides information for educational purposes, not specific tax or legal advice. Always consult a qualified tax or legal advisor before taking any action based on this information.

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