States, Looking Just About Anywhere for Some Cash, Consider Taxing Cloud Computing

In general, revenue-starved states, facing a projected 2012 budget shortfall of $102.9 billion, are powerfully motivated to collect tax on cloud computing, a market that Forrester Research estimates to be $41 billion this year, on its way to $241 billion by 2020. So far, however, "only a handful of states currently have specific language providing guidance on the taxability" of cloud and  SaaS, says Joel Waterfield, a senior manager at Grant Thornton.

Sales and use tax boils down to nexus: where a business has a physical presence that opens it up to tax liability within that jurisdiction. But when it comes to the cloud - where services are sold to customers who may access them anywhere from servers located who-knows-where by companies that may be headquartered anyplace - determining nexus, and the liabilities that go with it, is anything but straightforward.

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