Pennies from heaven? States look to cloud-based computing for tax revenues as old sources evaporate or move online.
Author | Weiss, Suzanne |
Position | TAX POLICY |
More and more of what we do every day through our computers and smartphones takes place in "the cloud"--vast networks of servers that allow us to store, manage and process data remotely, via the Internet.
A growing range &activities takes us in and out of the cloud all day long. When we sync our iPhones, search Google apps and maps, read our e-mail, create a photobook on Shutterfly, download a movie from Netflix, withdraw cash from an ATM, or network on Facebook, Twitter or LinkedIn, to name a few, we are using the cloud.
At the same time, an increasing number of businesses, from small startups to large corporations, are shifting to cloud-based computing as a way of cutting costs and improving efficiency. Technological advances have created a wave of computing capabilities delivered as a service, and vendors are competing intensely to match the needs of different customers.
Cloud computing offers businesses on-demand software, storage, processing and other fundamental computing capabilities that can be purchased in units rather than requiring a large, upfront capital investment. In many cases, the use of the cloud has allowed businesses to eliminate the expense of maintaining an in-house IT department.
Roughly half of the nation's businesses are now using one or more cloud-based services, according to Forbes magazine. And a recent report by Forrester Research predicted the global market for cloud-based services will increase from an estimated $50 billion this year to $240 billion by 2020.
The Tax Temptation
With so many business transactions being conducted through the cloud, small wonder that cash-strapped state governments are now looking closely at this rapidly developing market as a potential source of revenue.
"The thing that is being called cloud computing, while we've been doing pieces of it for some years, is now looking to be a new business model in a large way, and it affects every tax type you've got," says Verenda Smith, director of administration and policy at the Federation of Tax Administrators, a Washington, D.C., group that represents state revenue departments.
Cloud computing is just the latest technological trend, however, to expose the deficiencies of 20th-century state sales tax systems created to generate revenue from face-to-face exchanges of tangible goods that are now being replaced by digital, downloadable products.
Online shopping has grown into a $226 billion-a-year business. Technically, consumers are supposed to pay taxes on out-of-state or online purchases many states require them to disclose such purchases on their tax return forms. But most people don't.
In 2012 alone, states lost out on a collective $23 billion as a result of not being...
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