1. Washington Tax Law and Cloud Computing
Caleb Allen (WA DOR)

2. Cloud Computing Issues
WA law addressing cloud computing issues.
Three important issues around cloud computing:
Taxability
How WA law addresses cloud computing and other digital products transactions.
Sourcing
How WA law addresses sourcing of digital products transactions including some cloud computing services.
Nexus
How WA law addresses two specific nexus scenarios related to cloud computing.

3. Taxability

4. Washington Law
Digital products law addresses items transferred electronically:
Digital goods
Digital codes
Digital automated services (DAS)
Remote access software (RAS)

5. Digital Goods Digital goods SSUTA: digital books, music, and video.
Washington: sounds, images, data, facts or information or any combination thereof
E.g. digital picture, lawn mower engine diagram etc.

6. Digital Codes
Provides purchaser the right to obtain a digital good or DAS.
Example: digital code inside bottle cap allows the purchaser the right to obtain an MP3 file.

7. Remote Access Software
Washington taxes prewritten software
Delivered on tangible media
Digitally delivered
Remotely accessed.
Remotely accessed software (RAS):
Charges for the right to access and use prewritten software where possession is maintained by seller
Regardless of whether the charges for the service is per user, use, license, subscription or other basis.

8. Digital Automated Services
Introduction:
Unique and broad tax category addressing digital service transactions including some cloud computing.
Digital automated service (DAS) :
“….any service transferred electronically that uses one or more software applications…”
WA anticipated:
Rapid change in business models
Rapid change in and technology
Rapid change could make digital good and remote access software categories obsolete.

9. Evolution: Software into Services
T1-Gaming software purchased on a CD in a store
TPP = RST
T2-Gaming software accessed online:
Remote access software = RST
T3 Gaming software accessed online PLUS other services:
Real time multiplayer functionality
Chat rooms
World wide tournaments, etc
DAS = RST

10. Example 2: Digital Good into Services
T1-Music purchased on CD in store
TPP = RST
T2-Music accessed/streaming online:
Digital good = RST
T3-Music access PLUS other service:
Ability search information on music group or song.
Ability to chat with other fans.
Ability to compose songs and create digital files using software tools.
DAS = RST

11. Digital Automated Services Defined
Definition:
“…any service transferred electronically that uses one or more software applications…”
Definition encompasses many services including some cloud services:
E.g. Computers remotely accessed, controlled, configured etc by software layer.
Also includes other services “provided in the cloud:”
E.g. Online searchable database.

12. Sample Exclusions from DAS
Broad imposition makes exclusions from DAS important.
Protect WA business models (e.g. server farms)
Hosting, storage and back up.
Preserve existing industry tax treatment
Data processing.
Telecommunications & internet access.
Tax neutrality for online and offline activities
Primarily human effort (e.g. electronic contract sent via )

13. How it Fits Together Remote Access Software Digital Automated Services
Digital Goods
Software
Service that use software
Books,
music,
video,
data, facts,
information
The Cloud

14. Sourcing

15. Sourcing SSUTA general rule in WA applied to DAS/RAS/DG
Business location
Store location (not generally relevant for DAS/RAS/DG?)
Place of receipt
E.g. physical shipping address (available for DAS/RAS/DG?)
Address in business records
E.g. accounts receivable address, address in contract.
Address from sale
E.g. Credit card billing address usually available and generally works
“blind form of payment” (e.g. PayPal) no address?
Origin sourcing
Server location may be unknown or movable.

16. Nexus & Summary

17. Nexus Safe Harbors
These activities do not create nexus in WA for out of state seller:
Ownership of software or digital good located on server in WA.
Third party activities (e.g. marketplace services) conducted on seller’s behalf:
display of advertising,
order taking or
payment processing.

18. Summary
Taxability: WA has basic framework and definitions to address cloud computing and other digital product transactions.
Sourcing: SSUTA rule generally works but may create challenges for some digital transactions where information is lacking.
Nexus: two nexus issues resolved.