The Missouri Department of Revenue (“Department”) is the most recent state to step forward and offer guidance addressing the taxability of “recent information technology advances,” including “Software as a Service” (“SaaS”). Amended Regulation 12 CSR §10-109.050 became effective July 30, 2014.
The amendment provides that SaaS is considered a nontaxable service. SaaS is defined as "a model for enabling ubiquitous, convenient, and on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction. The term includes platform as a service (“PaaS”) model, infrastructure as a service (“IaaS”) model, and similar service models. It does not include any service model that gives the purchaser the right to use specifically identified tangible personal property."
In addition, the amended regulation provides that mandatory canned software maintenance agreements provided on a tangible medium are subject to tax, whether or not separately stated. Optional canned software maintenance agreements delivered on a tangible medium are also subject to tax, however, electronically delivered optional maintenance agreements are not taxable. Several detailed examples are also given.
Missouri joins a growing list of states that have issued guidance on the taxation of SaaS and deemed such services as nontaxable. In January, 2014, Nebraska issued guidance addressing the taxability of cloud transactions (See prior blog on this subject); and earlier, in July, 2014, the New Jersey Division of Taxation also issued guidance concluding that SaaS is not subject to sales and use tax in New Jersey because it is not the sale of tangible personal property. See N.J. Technical Bulletin TB-72 (7/3/2013). The Division reasoned that:
because SaaS only provides the customer with access to the software and the software is not “delivered electronically” it is not the sale of tangible personal property. . . . SaaS providers fully retain and operate the software applications to which they sell access. Customers only have access to the software through remote means. SaaS customers do not receive title or take possession of the software. The SaaS provider uses the software it owns or licenses to provide the service and does not transfer the software to its customer. A SaaS provider is not treated as a reseller of a license to use the software. Therefore, the sale of SaaS is not a sale of tangible personal property. Rather it is the sale of a service.
N.J. Technical Bulletin TB-72 at p. 2.
Thus, while we continue to see controversy in this emerging area, the prevailing wind is blowing the tax off the cloud.
Other recent “Cloud, Software & Digital Tax” posts by Carolynn Iafrate Kranz:
- Pennsylvania Tax on Software Support Services: Ruling Re-issued
- Illinois Finally Rules on SaaS
- Tennessee’s Situsing of Accessed Software Runs Afoul
- Chicago Taxes the Cloud
- Tennessee Enacts Legislation Taxing Remotely Accessed Software