Just How Complex IS the Management of Your Company’s State Taxes?

A terrific article entitled “The Non-Tax-Executive’s Guide to State Taxes” appeared on CFO.com this week and could serve as something of a companion piece to our post from Tuesday on the C-level misconceptions concerning proper handling of state and local tax issues. We like it because it doesn’t soft-pedal the serious complexities of multi-state tax compliance or the potentially damaging consequences if this situation isn’t handled correctly.

The writers use the following points to demonstrate just how important it is to take seriously state tax issues:

Punitive Taxing on the Cloud Helps Texas Shoot Itself in the Foot

CFO.com reported last week on the trend among the states to widen their definitions of nexus to include cloud computing services. As we’ve noted with respect to the so-called “Amazon tax” laws that have been recently created (or are under consideration) in many states, this tendency to try to capture more tax revenue by defining physical presence in ever-expanding terms represents an increasingly desperate grab for revenue by states that are currently over $4 trillion in debt.

In terms of cloud computing services, which are, as described by CFO.com, “sold to customers who may access them anywhere from servers located who-knows-where by companies that may be headquartered anyplace,” the taxes that have been legislated by a handful of states seem to presage a monumentally confusing and costly situation for cloud service providers. As detailed in the article, the laws from state to state determine taxability for cloud services in many different ways, making it increasingly difficult for service providers to determine when taxes should be applied to a transaction and when they should not.