Oregon’s Facebook Bait-and-Switch

More bad news for companies with data centers: yesterday, the Washington Post reported that Facebook is embroiled in a dust-up with the state of Oregon over the property taxes levied on the company’s data center, which is located in one of the state’s rural enterprise zones. When Facebook agreed to locate the facility in Prineville, Oregon, the decision was partially based on the incentives package offered by the local government — which included property tax breaks on the data center’s buildings and other assets for 15 years. Now, the state Department of Revenue has informed Facebook that it will be taxed under another section of the Tax Code — one reserved for utility companies — that gives the state the authority to “assess any property, real and personal, tangible or intangible.”

The upshot is that Facebook’s current $26,000 tax bill could skyrocket at some point if the state does choose to tax the company’s intangible assets like software, patents, labor, and goodwill. Given that the company is valued at ± $50 billion and that Oregon could be positioning itself to lay claim to taxes on the share of Facebook’s business tied to that state, Facebook could be looking at an unexpectedly high tax assessment.

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.