Senate panel approves Proos bill giving businesses clarity on sales tax

LANSING – The Senate Finance Committee on Wednesday approved legislation sponsored by Sens. John Proos and John Pappageorge that would clarify that cloud-computing software, such as Gmail or Hotmail, is not subject to the state’s sales and use taxes.

“Technology is the future, and to create jobs we must make Michigan competitive in the online, 21st century economy,” said Proos, R-St. Joseph. “I sponsored this measure because it is about improving our business climate and treating new technologies fairly. Unlike computer products that can be held or touched, this software is service-based. Once the consumer ends the service contract, they lose access to the software. We should not be taxing them like purchased property.”

Michigan sales tax applies to “prewritten computer software,” but does not apply to services. Senate Bills 335 and 336 would exclude granting the right to use prewritten software installed on another person’s server from the state’s sales and use taxes. 

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 the provider’s website.  Examples include email services such as Yahoo! Mail and online conferencing services, such as GoToMeeting.

“Clarity is absolutely necessary because the state’s position is uncertain,” said Proos, a member of the committee. “I have heard from job providers in our state that much confusion has been created due to mixed rulings by the Treasury Department on what is taxable and what is not. My reform would give the business community the clarification they need and help avoid costly court battles over this issue.”

Proos added: “The world of technology is ever-changing; as lawmakers, we must keep our finger on the pulse in order to foster an environment where these types of businesses can thrive and create jobs for Michigan residents.”

The bills are supported by the business community, including the Michigan Chamber of Commerce. SBs 335 and 336 now head to the full Senate for consideration.