• Nebraska: State is Not (Directly) Taxing “The Cloud”
  • February 10, 2014
  • Law Firm: McDonald Hopkins LLC - Cleveland Office
  • The Nebraska Department of Revenue (DOR) updated its Nebraska Sales and Use Tax Guide for Computer Software (Software Guide) late last month which provides guidance regarding the taxation of cloud computing in the state. The DOR originally issued its Software Guide in July 2011.

    In Nebraska, gross receipts from the sale, rental, lease, license, or transfer of prewritten or custom computer software are subject to sales tax. The sales tax is determined without regard to the seller’s method of delivery to the purchaser. Also, training on the use of software is a taxable service if performed by the seller of the software, and regardless of the nature of the seller. Maintenance or service contracts and charges for installing computer software are taxable.

    “Cloud Computing,” per the Software Guide, is “[s]ervices which allow customers to access and use computer software, servers, operating systems, databases, and other computing resources via the Internet. Cloud computing includes services known as Software as a Service (SaaS), Platform as a Service (PaaS) and Infrastructure as a Service (IaaS).”

    These cloud computing service charges are tax exempt sales. More specifically, the DOR stated:

    Charges for services which allow customers to remotely access software applications, operating systems, servers, and other network components via the Internet or other online connections are not taxable. This is true regardless of whether the software, hardware or network components are located in Nebraska or outside the state.

    The DOR’s stance does not necessarily make this a tax exempt (or tax effect free) transaction for all. The service provider will be responsible for paying sales or use tax on its purchases of software, hardware and network components if these items are used in Nebraska. Thus, while the transaction between the user of cloud services and the service provider may be tax free to the user, the service provider will be assessed and will likely build in the sales and use tax cost of certain components of providing such cloud services to its users.