LANSING – Cloud-computing software, such as Gmail or Hotmail, would not be subject to the state’s sales and use taxes under legislation sponsored by Sens. John Proos and John Pappageorge and approved by the Michigan Senate on Thursday.
“For Michigan to be competitive for jobs and investment in the 21st century economy, we must embrace a world of constantly-evolving technology,” said Proos, R-St. Joseph. “I believe that by treating new media technology fairly, we can foster an environment where these types of businesses can thrive and create jobs.”
Michigan sales tax currently applies to “prewritten computer software,” but does not apply to services. Senate Bills 335 and 336 would clarify that granting the right to use prewritten software installed on another person’s server is not subject to the state’s sales and use taxes.
“A series of mixed rulings by the treasury department has made clarifying this absolutely necessary,” Proos said. “Michigan job providers deserve the certainty of knowing what is taxable and what is not. I sponsored this reform to give the business community this kind of clarification and to help avoid costly legal battles over this issue.”
Commonly referred to as “cloud computing,” this software involves a provider using their own hardware and proprietary software to provide a service to customers so that they may use their own computer to access a provider’s website. Examples include email services such as Yahoo! Mail and online conferencing services, such as GoToMeeting.
“This legislation is about bringing fairness and a commonsense approach to our state’s tax policy,” Proos said. “These are not computer products that can be bought or held. These are service-based software products, which consumers lose access to once they end their service contracts. We should not be taxing them the same as we do purchased property.”
The bills are supported by the business community, including the Michigan Chamber of Commerce. SBs 335 and 336 now head to the House of Representatives for consideration.