
Rackspace, Hostgator, Linode customers must file taxes in Texas from now on. - WildUtah
http://www.usataxaid.com/ustaxaid-blog/are-small-businesses-about-to-get-caught-in-texas-nexus-battle/
======
rjamestaylor
Slow down, people...

Here's part of an update from the Texas Taxpayers Research Association
applicable to this matter:

"... This past week TTARA had extensive discussions with the Comptroller’s
office concerning the original intent and interpretation of the new language.
The Comptroller’s Office has acknowledged that the purpose of the proposed
rule was indeed broader than what was stated in the preamble, but not so broad
as to extend nexus to anyone using a server in Texas.

In order to properly clarify the intent of the rules change and more clearly
state agency policy, the Comptroller’s Office will issue a new rule proposal.
William Hamner, Director of Tax Administration indicated that the agency’s
intent is not to extend nexus to a person simply using a third-party server in
Texas for an activity such as webhosting. ..."

Move along...nothing to see here

~~~
kjuhygtfrde
Presumably this was beaten into the comptrollers office with a cluebat over
the sound of uhaul trucks emptying all the data centers that had been built in
Texas

------
dotBen
the HN title here is a little FUD... The article states:

"The new rule states that if you use a server that is housed in the state of
Texas, you have Texas nexus for sales tax. That means you must collect and pay
sales tax from any taxable sales made to customers within the state of Texas."

So let's assume this isn't bunk _(I'm not convinced this is true, but
anyways...)_ what she is saying is that you would have to collect sales tax on
sales to other folks _who reside_ in Texas.

For a start, this wouldn't apply to you unless you are running a sales
business and even then it has to be one that is selling goods rather than
services.

So advertising, pro services and SaaS orientated businesses, this wouldn't
apply to you. If you use a TX HQ'd host but run on servers outside of Texas it
doesn't apply either - so Linode's hosted in London, Atlanta, Newark or
Fremont _(dude, there's a fault line there, you know?)_ are ok too.

If this is in fact true, and you are running a sale of goods business, you
would want to make sure your webhost never migrates you to a TX datacenter
otherwise you could suddenly be liable for uncollected state tax :/

I'm going to look into this because we run a hosting business out of TX.

~~~
dotBen
Further thoughts:

I wonder how they are defining 'servers located in TX'?

* Would a database server located in TX but web pages served to customers from California be ok?

* What about servers in California but you use Akamai for CDN and you serve most TX customers via an Akamai edge-cache in TX

It's not really HN subject matter, but don't forget this pales into
insignificance compared to the new tax law which says you have to fill out and
issue a 1099 to anyone you buy more than $600 of stuff from:

[http://money.cnn.com/2010/05/05/smallbusiness/1099_health_ca...](http://money.cnn.com/2010/05/05/smallbusiness/1099_health_care_tax_change/)

~~~
trunnell
At the risk of going off-topic...

 _...the new [1099] tax law..._

There's a lot of noise being made about this but I think it's mostly FUD.

I ran a small business for about six years and had to file 1099s. Filing 1099s
was really easy. If I had to, I could probably even do it retrospectively to
meet this >$600 requirement without breaking a sweat: my business credit card
aggregated all yearly purchases by merchant and by category. It would be a
simple matter of looking at my year-end statement as all my business expenses
were paid with that account. Also, the most basic Quicken-like accounting
packages offer the same functionality. If there are market gaps for simple
software (or bank statement reporting) they will be filled quickly. So I think
this is much ado about a very small problem.

Still, there's a good chance the opposition to this relatively minor reporting
requirement will force it to be repealed. If it does go into effect, I would
expect the IRS to offer better automated filing for 1099s if for no other
reason than to make their own jobs easier.

I have trouble believing those who complain so loudly about this requirement
(thread parent excluded) because so often they are opposed to the health care
legislation on other grounds. On balance, this health care law is designed to
be a huge net positive for small businesses-- in addition to new tax credits
to help them pay their employees' premiums, for the first time there will be
public group policies available in the new health care exchanges with real
competition. Costs should go _down_ for small businesses, _significantly._
Doing a couple hours of extra accounting each year pales in comparison to
these benefits.

~~~
anamax
> Costs should go down for small businesses, significantly.

Obamacare's congressional supporters are not claiming that these days. If
anything, they're saying that it won't reduce spending and wasn't intended to.

What do you know that they don't? (Note that they'd like to claim savings for
political reasons.)

------
rjamestaylor
Here's a response from Rackspace (my employer):<http://su.pr/2gCe3k>

"Rackspace comments on changes to Texas Sales Tax Rules

Rackspace has been in discussions with the Texas Comptroller’s Office and its
tax advisors to address the recent changes to the state rules governing Texas
sales tax.

The new controversial language states, “A person is engaged in business in
Texas if the person has nexus with the state as evidenced by, but not limited
to, any of the following: [...] derives receipts from a rental or lease of
tangible personal property that is located in this state or owns or uses
tangible personal property that is located in this state, including a computer
server or software;[...]“

The Comptroller’s Office has indicated that the language was not intended to
be construed as so broad as to extend nexus to anyone using a server in Texas.
William Hamner, Director of Tax Administration indicated that the agency’s
intent is not to extend nexus to a person simply using a third-party server in
Texas for an activity such as webhosting. However, since taxable items are
subject to taxation in both electronic and physical form, the sale of data,
such as music files, housed on a Texas server could create nexus for the owner
of the data.

Because of the unintended confusion that has resulted from this change, we
understand that the Comptroller’s Office will issue a new rule proposal in
order to properly clarify the intent of the rules change and more clearly
state agency policy on this matter.

We will continue to actively pursue a positive outcome on this issue with the
Comptroller’s Office and will continue to monitor and report on any new
developments that we believe to be important to our customers."

~~~
mgkimsal
The Comptroller's response here is the exact opposite of the language, based
on what I'm reading. If "the language was not intended to be construed as so
broad as to extend nexus to anyone using a server in Texas" then why use the
language "A person is engaged in business in Texas if the person has nexus
with the state as evidenced by, but not limited to, any of the following:
[...] uses tangible personal property that is located in this state, including
a computer server".

The "sale of data, such as music files" is a specifically defined process,
wholly separate from "using personal property, including a computer server."

IMO, the state got caught trying to overreach, and they're playing the
innocent "oh that's not what we meant!" hand. If it's not what you meant,
change the language.

Words have meanings - someone knew _exactly_ what he/she was doing when that
was drafted. _Especially_ given the large number of data centers hosting
servers in Texas, with its central geography, cheap land/power, etc. The pain
of migrating away is too great and expensive - people will just comply with
the new taxes and most will stay. Some may leave, but it'll take a long time.
In the short term - few years, TX will get extra income.

------
dangrossman
I don't really understand how this could work. How does purchasing a service
from a Texas company give you a physical nexus in Texas? Maybe if Texas was
arguing this applied to those who colocate physical servers they own in a
Texas data center I could buy it. But merely being a customer of a hosting
company, where you are being sold some storage space and bandwidth on a
computer? Whether it's shared hosting, VPS or renting a server, you don't own
any physical property in the state.

~~~
rottencupcakes
That's a silly argument. If I rent office space and rent an apartment, I don't
own any physical property in that state either.

Obviously this isn't ideal, but it seems very reasonable from that point of
view.

~~~
jules
And if a company uses a service that happens to be hosted in Texas? e.g. a
wiki. Do they have to pay taxes there as well? Why is a virtual server
different?

------
swombat
Yeah, right, and how exactly are they planning to enforce that on all those
international customers? Seems like wishful thinking on the part of the tax
department - and wishful thinking that isn't likely to last long, because if
they do somehow try to enforce this, they'll just drive all their hosting
businesses out of Texas.

~~~
jackowayed
Well, driving all their hosting businesses would be a very slow process if it
happened at all.

First, the hosting companies would have to find/build enough datacenter space
for all their servers that are currently in TX. This includes abandoning large
investments into their TX datacenters, which will lose value if this exodus
really occurs.

Once they've done that, they have to move the stuff. VPSes and shared hosting
are probably fairly easy to move with minimal downtime (as long as you have
enough extra hardware), but Rackspace would have one hell of a time getting
all of their customers to move their colo-ed servers to another state.

Also, there are reasons that TX has so many datacenters. Land is pretty cheap,
as is power thanks to all their wind energy. It's in the middle of the
country, helping you have low latency to both coasts. It's a great place to
put a datacenter.

------
matthavener
Susan Combs is responsible and she's up for re-election Nov 2nd.
([http://www.sos.state.tx.us/elections/candidates/general/2010...](http://www.sos.state.tx.us/elections/candidates/general/2010gensbs.shtml))
I doubt this will last for long.

~~~
middlegeek
Before attempting to unleash an internet mob, please take a look at this post:

<http://news.ycombinator.com/item?id=1785593>

------
SabrinaDent
You're misunderstanding the blog post. It says:

 _That means you must collect and pay sales tax from any taxable sales made to
customers within the state of Texas._

So if your servers are in Texas, and you make an online sale to a customer in
Texas, you (apparently) need to charge that customer sales tax.

------
metageek
The article claims that the standard is "if you use a server that is housed in
the state of Texas". If I use, say, Google Apps, or Google App Engine, I have
_no_ idea where the servers I'm using are.

------
jacquesm
For as long as they still have customers I guess.

Way to go Texas, the rest of the US and Europe thank you.

Sales tax levies on server location, you have to give them points for
creativity though.

What if I have multiple servers in multiple servers in different states or
even countries?

How about I just pay sales tax on where my company is located and we'll call
it a day?

The EU is getting more and more greedy too by the way, it used to be that you
were VAT exempt for international sales but suddenly all sales to consumers
within the EU are VAT liable.

But at least they go by corporate presence, not by where you've parked your
servers this week.

~~~
kjuhygtfrde
Sure, my office and showrooms are in New York, my factory is in Texas but my
company is a brass plaque in Grand Cayman - so I'm not paying any taxes!

~~~
btilly
For a while Citibank used to have a dodge where they'd try to get a desk in a
NY skyscraper to be declared as part of the Cayman Islands embassy, and
therefore Cayman Islands territory, so that the person working from there
could more easily run their shell companies without being subject to NY law.

My understanding is that this was stopped a number of years ago.

~~~
kjuhygtfrde
It's quite common for the trades to take place in an off-shore location.

The dealers in NY aren't actually buying or selling shares - they are only
making recommendations to brokers in an offshore office.

The fact that those recommendations are all automatically acted on in
milliseconds by the offshore office just demonstrates how good the advice was!

~~~
btilly
Yes, that was their workaround when the IRS disagreed with them on the
legality of the previous dodge.

------
rebelde
Wait, does this mean that my earnings are in Texas where the state income tax
rate is 0%? Woohoo. That sure beats paying tax in my state. I'm half-serious
here. This might be worth looking into.

~~~
WildUtah
The Texas corporation income tax is one of the highest in the nation. When
Texas comes to tax your servers with the state income tax, you'll really be
sorry.

------
icey
I'm getting "Error establishing a database connection" when trying to see this
- does anyone have a mirror?

~~~
ptm
Google got it <http://bit.ly/cJtUzk>

------
TamDenholm
I don't know about the other hosts but being a linode customer myself I know
that Linode allows you to move your linode to any other data center free of
charge.

~~~
ary
Is this really the case? I think you can setup a new linode (at a new data
center) and then clone your current one. Is there really a way to shut it down
and move it? Just logged into my account to check and couldn't find the
option.

~~~
cmelbye
Submit a ticket. If there's space in the datacenter you want, they'll schedule
a migration instantly. If not, they'll put you on the waiting list.

------
eekfuh
Wow. This could seriously hurt Texas if people start pulling out of the TX
data centers and those data centers are forced to shut down or move to a more
friendly state. I personally use Linode and this freaks me out a bit.

------
vaksel
frankly I think this is b.s., doesn't interstate commerce fall under federal
jurisdiction anyways?

why should internet companies have to deal with this B.S. for all 50 states?

Frankly i think this is just a way for them to soften everyone up for an
internet sales tax. "Oh you don't like filing 50 different tax forms? Well
good news, we now have an internet sales tax of 3%"

~~~
tedunangst
The point is that if part of your business is in the same state as the
customer, it's not interstate. This is hardly a new rule. Mail order catalogs
have extracted sales tax in states where they had warehouses since before
there was an internet.

~~~
tbrownaw
But someone still has to define what it means to have "part of your business"
in a state. You own fixed property that's located there? One of your employees
works from home and lives there? One of your employees worked 2 hours while
waiting at an airport in that state? Someone rents something from you and
takes it into that state? Your cloud provider keeps a backup facility in that
state?

It seems like the _definition_ of what it means for a business to have nexus
in a state (so, what business counts as "interstate") is a perfect thing for
the feds to handle.

~~~
anigbrowl
It's referred to as having 'minimum contact' with a state; it's not just for
tax purposes, but would also matters for things like lawsuit jurisdiction and
so forth. Here's a recent summary with good references that explains the
basics: <http://www.picpa.org/Content/41763.aspx>

------
thaumaturgy
There's already another goods provider which seems to have been directly
affected by this decision:
[http://forum.daz3d.com/viewtopic.php?p=2562075&sid=38561...](http://forum.daz3d.com/viewtopic.php?p=2562075&sid=3856181a672c292c251f2dc325894820)

------
ck2
This is why you should run even dedicated servers as a vps and use the
portability to move the node to friendlier territory within an hour or two on
demand.

So what if you are on a cloud that unknowingly uses resources in Texas?

Sheesh politicians never think these things out.

------
nhebb
Another consideration: if you sell desktop software and use a payment
processor, many of the full service payment processors like Fastspring,
Plimus, Avangate are resellers. So the customer is actually buying from the
reseller and not you.

------
callmeed
Great, that will be 4 states I have to file taxes in now ... yuck.

------
mmaunder
Server DoS'd. Google's text-only cached version:

<http://bit.ly/dA9Vbc>

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bhiggins
Linode has multiple datacenters, so I'm guessing this will only apply if
you're using their Dallas, TX datacenter... right?

