Sunshine State Still Not Taxing the Cloud

October 14, 2016

On August 8, 2016, Florida reaffirmed its position on the taxation of electronically delivered software and Software as a Service (SaaS) in Florida Technical Assistance Advisement 16A-014, 8/8/2016. The issuance of the ruling means that Florida remains in the group of states still requiring software to be delivered in a tangible form for sales tax to be imposed.

The ruling addressed the sales of a provider offering subscription-based access to customized software hosted on remote servers as well as other cloud computing services such as hosting, back-up, and storage. The provider’s customers did not receive any tangible personal property as part of the subscription to the software and services offered. In addressing the treatment of these products and services, the Department of Revenue (the Department) reflected its refusal to expand the application of sales and use tax beyond the plain language of Florida’s statutes and regulations.

The Department made it clear that software can only be subject to Florida sales and use tax when transferred by some tangible means, whether by providing the software on a disk or in connection with the sale of other tangible personal property such as computer hardware. The Department further confirmed its treatment of the sale of customized software as a nontaxable service. Thus, software electronically delivered, for example software that is downloaded via a link, or accessed remotely through the cloud is not subject to sales tax in Florida. California, Maryland, and Virginia are a few states that share in Florida’s approach, only taxing pre-written software when it is delivered via a tangible medium.

Still, anyone familiar with the recent trend in this area knows that many other states approach taxing software very differently. The sales and use tax treatment of the sale of software, and even the sale of cloud computing services varies wildly. New York, Indiana, and Washington tax sales of pre-written software, even if the software is delivered electronically or accessed over the cloud. While the ultimate sales tax treatment is similar in these states, result is reached in different ways. Unlike Florida, that applies its sales tax laws as written, New York and Indiana apply a strained interpretation of old law to new technology. Both states have concluded that they can tax software accessed remotely because the end user “constructively receives” the software. Washington, on the other hand, has updated its law to address the new technology, with statutory provisions clearly making both electronically delivered software and SaaS subject to tax.

The disparate sales tax treatment of software and cloud computing services underscores the importance for software sellers and purchasers to be diligent in maintaining compliance with state tax rules. This is particularly difficult in the area of software. The states’ attempts to deal with potential revenue loss from the new software delivery methods has resulted in numerous rule changes across jurisdictions, which can be confusing for taxpayers.

If the sales tax treatment of software or cloud computing services is an issue in your business, please contact Michael L. Colavito, Jr., JD, at 301.231.6200 or