Recently we’ve had several clients question whether or not they should pay sales tax on software they pay to use that is not housed on their server. These are known as cloud services. We have been including sales tax on these items for our non-tax exempt clients.
To make sure that we’re doing the right thing, we’ve done a little research and were pointed to Michigan Senate bills 335 and 336 by the Mackinac Center for Public Policy.
Bill 336 Introduced by Sen. John Proos, IV (R) on April 26, 2011, to clarify that a right that has been granted to another person allowing the use of “prewritten computer software” is not exempt from use tax.
Bill 335 Introduced by Sen. John Pappageorge (R) on April 26, 2011, to clarify that a right that has been granted to another person allowing the use of “prewritten computer software” is not exempt from sales tax
Both of these bills have passed the Senate, moved on to the House Tax Policy committee passed there with recommendation to the full House that they pass the bill. They have sat at this status since mid-September. Both bills also include a retroactive clause. This means that when they pass (and I say that because the Senate has already passed and House Committee has recommended that they follow suit) everyone will owe back sales and use tax for cloud services if they haven’t already paid it.
We’ll continue to watch this issue but the trend nationally is toward expanding the definition of a taxable sale and use and Michigan is following suit. That the bill is worded as a clarification means that as far as Michigan is concerned they feel it’s already taxable. These bills are just to make that very clear to everyone. This is why you see sales tax for these items on our invoices.