Cloud Computing Taxable to Ohio Customers

State and Local Tax

By Cathleen Condrac

In a recent opinion issued by the Office of the Tax Commissioner in Ohio, it was determined that a cloud-based service was taxable to Ohio customers as automatic data processing.

As a leading multi-brand technology solutions provider, the taxpayer requested an opinion from the Tax Commissioner regarding the taxability of its cloud-based software.  The facts provided in the opinion indicate that through a Cloud Collaboration Service Offering, taxpayer-owned software applications are made available to customers via the taxpayer’s computer hardware.  The Cloud Collaboration Service Offering supports the customer’s own voice, video, messaging, presence, audio/web conferencing, and mobile capabilities.  The customer utilizes the hosted software applications using its own equipment and through its own telecommunication, Internet or other network connection.  At no time does the customer download or otherwise possess the software that is hosted by the taxpayer.  In the end, the customer is ultimately outsourcing certain activities previously performed in-house that were never subject to sales tax.

It is the opinion of the Tax Commissioner that the Cloud Collaboration Service Offering is taxable as an automatic data processing service since the taxpayer is providing its customers access to computer equipment that allows the customers to process data.  However, this service is only taxable when used in business by customers located in Ohio who also access the service from a location within Ohio.  The Tax Commissioner further determined that charges for hosting services would be taxable as part of the price of the automatic data processing service.  

The complete opinion may be found at Cloud-Based Applications No. 14-0001, Ohio.

© 2014 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2019 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.