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
"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.
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:
I have a startup. Now I have to do this. It pisses me off.
I'm thinking that's about as much an "HN Matter" as anything else on the front page.
This is the "death by a thousand cuts" scenario: lots of little piddly nuisances which add up to a regulatory nightmare. None of them are really all that onerous, but taken together, well, things accumulate, and perception is 9/10ths of reality. There is an aggregation of PITAs from state, local, and federal governments. I'm not saying that in an anti-government way. Whatever your feelings about taxation and government, it's more of an issue of the bus heading down the road and nobody is driving than anything else.
...the new  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.
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.)
No. The central point is a piece of your business is inside of Texas.
This appears to be somewhat moot, as it looks like there's some uncertainty as to interpretation, but generally, it doesn't matter what part of the business is in the state, just that any part is.
Probably a weak theory, but TX doesn't seem to care about that. When I used to have a shell account on io.com in the mid-90s, TX started forcing them to charge me sales tax, even though I was clearly not present in TX.
"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."
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.
Applying these principles, [the US Supreme Court has] held that if a foreign corporation purposefully avails itself of the benefits of an economic market in the forum State, it may subject itself to the State's in personam jurisdiction even if it has no physical presence in the State. [They then reason that jurisdiction to resolve lawsuits establishes a sufficient level of judicial authority to satisfy the Commerce Clause's requirement that states not unduly hinder interstate commerce.]
Policywise, I think it is almost certainly a poor decision for Texas, but legally this could be a close call. There are many, many unsettled questions about how the Internet economy intersects with tax regulations drafted back when Sears Roebuck consumed a measurable percentage of the world's total paper output. (Ask me sometime about tax treatment for BCC. It is an international boondoggle.)
Under these conditions, anyone with a Gmail account would have to pay taxes where ever their email is stored by Google.
Obviously this isn't ideal, but it seems very reasonable from that point of view.
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.
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.
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.
My understanding is that this was stopped a number of years ago.
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!
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%"
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.
So what if you are on a cloud that unknowingly uses resources in Texas?
Sheesh politicians never think these things out.