By enacting a temporary moratorium on the enforcement of sales tax on charges for remote access to prewritten software, Vermont has effectively upended its previous stance on taxing cloud computing. Vermont Governor Peter Shumlin recently signed into law House Bill 782, which contains the moratorium. See sec. 52 of 2012 Vt. Acts & Resolves No. 143.
The moratorium prohibits the state's Department of Taxes (DOT) from assessing sales tax on charges for remotely accessed software made after December 31, 2006 and before July 1, 2013. It also instructs the DOT to refund any taxes paid on charges for remotely accessed software if a taxpayer makes such a refund request within the statute of limitations with proper documentation.
Cloud Computing refers to using a remote network of computer capacity to store, manage, and process data, rather than a local server or a single computer, typically accessing the network though the Internet. Cloud computing includes Application Service Providers (ASP) and Software as a Service (SaaS). ASP is understood to mean providing computer-based services to customers over the Internet, and Saas (or ASP software) refers to providing access to software over the internet. Typically, in SaaS transactions, a purchaser pays to use software under a limited license.
What differentiates SaaS from traditional software sales or licenses is that the purchaser usually does not install any software on his or her computer. Thus, there is no transfer of tangible personal property or "download" of software. Instead, the purchaser merely "accesses" and "uses" the software over the internet.
Prior to this act, the DOT took the position that SaaS was taxable. In a 2010 Sales Tax Bulletin (that was subsequently revised in 2011), the DOT stated that prewritten software was subject to sales tax "regardless of its method of delivery." And, the DOT further explained that "[p]rewritten software that is licensed for use and available from a remote server is also taxable." See Vt. Technical Bull. No. TB-54 (Dept. of Taxes Apr. 11, 2011). In recent months, this position had grown controversial, as the DOT had sought to enforce this policy by collecting tax on SaaS.