Senate Finance Committee approves MacGregor’s cloud computing tax exemption bill

LANSING, Mich. — Legislation sponsored by state Sen. Peter MacGregor exempting Internet-based software services from state sales and use tax was approved by the Senate Finance Committee on Tuesday.

“Simply put, the state of Michigan should not be taxing the services provided by these Internet-based companies,” said MacGregor, R-Rockford. “By enacting this legislation, we will create certainty and predictability for job providers in our state, which will encourage technology companies to locate and grow in Michigan.”

In the software as a service (SaaS) model, which can also be referred to as cloud computing, software is not sold or distributed physically. Instead, SaaS involves a provider using its own hardware and proprietary software to provide a service to customers using their own hardware remotely. Unlike the legacy distribution model, the SaaS licensing model differs in that a perpetual one-time license fee has been replaced by a subscription model.

For the end user, this means that, for example, in order to use Citrix’s GoToMeeting video conference software or Microsoft’s Office 365 services or Adobe’s Creative Cloud suite, a person must be a subscriber in order to access and use the software.

Currently the state’s sales and use tax applies to prewritten computer software (tangible goods) but does not apply to these services. This legislation, therefore, clarifies that granting the right to use prewritten software installed on remote servers is not subject to the state’s sales and use tax.

Senate Bill 82 and its companion, SB 83, sponsored by Sen. John Proos, now go to the full Senate for consideration.