Massachusetts Considering a Tax on the Cloud

Boston is home to a variety of technology firms.

Massachusetts could be readying to level a state tax on cloud-computing providers.

Governor Deval Patrick is proposing a sales levy on “computer and data processing services,” a broad categorization that includes everything from building Websites to backing up data in the cloud—in fact, according to his budget for fiscal year 2014, the only exemptions are “(1) downloaded books, music, videos or ringtones, or (2) computer facilities management services.” The proposed tax is just one component in the governor’s fiscal 2014 plan, which would also lower sales taxes across the board, slap a 15-cent tithe on a gallon of gas, and hike the income tax; the added money will go to new education and transportation initiatives.

Boston’s 90.9 WBUR spoke with a state official about the provision. “I think the best way to say it is we need our tax code to catch up with the way that technology is affecting everyone in their daily lives,” David Sullivan, legal counsel for the Executive Office for Administration and Finance, told the radio station. “Our tax agency is no different from the rest of the world. We’re not living in the 19th century any more.”

The station also quoted Paul Davis, CEO of local data-analytics firm Intelligent Integration Systems, as saying the proposed tax was “untenable.” Given the number of technology companies and Web hosts in Massachusetts, taxing the cloud could potentially bring in hundreds of millions of dollars a year—WBUR’s story placed it at $265 million.

Analysts generally agree that cloud computing will only grow over the next several years. Even businesses that built enormous fortunes from boxed software and on-premises hardware have turned increasingly to Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS) and Infrastructure-as-a-Service (IaaS) as a core part of their respective business models. Meanwhile, more consumers are relying on cloud-storage services such as Apple’s iCloud to store their digital lives.

When one considers the subscription fees these businesses and consumers pay for these services, it’s clear that the cloud is a huge opportunity for IT vendors that craft anything cloud-related. And given those revenues, it was only a matter of time before governments came sniffing around for their cut.

The question now is whether those entities potentially affected by the Massachusetts tax will push back—if enough firms threaten to leave the state, it could compel the governor to adjust his plan. The language in the provision is also amorphous, raising the possibility that further revisions could narrow the tax to a subset of software and services.

 

Image: Songquan Deng/Shutterstock.com

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