The New Jersey Division of Taxation (“NJDT”) has released guidance addressing the sales tax treatment of cloud computing, which generally refers to services that allow a customer to remotely access and use a service provider’s software. In cloud computing transactions, the service provider does not actually transfer software to the customer and the customer has no right to download, copy, or modify the software.
NJDT has determined that cloud computing services generally are non-taxable services for sales tax purposes. NJDT reasoned that cloud computing services do not constitute taxable tangible personal property because customers do not receive title or take possession of the software and such services do not alone constitute enumerated services that are otherwise subject to New Jersey sales tax. However, cloud computing services may be subject to New Jersey sales tax if they are provided together with the transfer of tangible personal property or other taxable services (e.g., information services).
The New York State Department of Taxation and Finance (“NYDTF”) has taken the opposite position, treating cloud computing services as the sale of tangible personal property subject to New York sales tax. In NYDTF’s view, customers receive taxable licenses to use prewritten software because customers obtain constructive possession of the software. NYDTF’s position has been viewed by many as very aggressive and in conflict with prior binding legal precedent.