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Texas and Taxes: Is a Server a Business Presence?

samzenpus posted more than 3 years ago | from the do-you-take-virtual-money? dept.

Businesses 103

1sockchuck writes "Does having a server in a data center give you an official business presence in the state where the data center is located – invoking the requirement to collect state taxes? Not in Texas anymore, thanks to a new bill, which clarified a ruling that would have required hosting companies leasing servers in Texas to collect state sales tax from their customers. That's a big deal, since Texas is home to many of the industry's largest hosting companies — including Rackspace and SoftLayer, who have comments on the issue."

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Owning? Yes. Leasing? No. (4, Insightful)

blair1q (305137) | more than 3 years ago | (#36754828)

If I can move my business out of the state using the dd(1) command, I don't have a presence there.

Re:Owning? Yes. Leasing? No. (3, Funny)

TheGratefulNet (143330) | more than 3 years ago | (#36754986)

If I can move my business out of the state using the dd(1) command

oh, no you don't, buddy! this, here, is a union shop!

you'll use 'find' and 'cpio' and like it.

Re:Owning? Yes. Leasing? No. (1)

wagnerrp (1305589) | more than 3 years ago | (#36755214)

How is this any different from picking up a truck or generator from an equipment rental place, or renting storage in a storage facility? You are renting time and space on the server. If the company you rented the server from is in Texas, then that company should pay Texas sales tax.

Re:Owning? Yes. Leasing? No. (2)

Pharmboy (216950) | more than 3 years ago | (#36755324)

Because the "contents" of the website aren't physical things, and the law covers physical presence only. If you delete your "store", the server weighs the same as it did before. As it is, sales tax laws in most states are about the physical presence only.

When we were in NC, but did significant work in VA, we had to charge VA tax on those visits because we physically went to VA to do the work and charge the customer, in VA. Now we don't do work in VA (unrelated reasons) and don't charge tax for just shipping equipment there. This is per their own tax authority.

If you could be considered physically not in a state by just moving your server, every company would have their servers in the Bahamas, where taxes are ridiculously low, just to avoid taxes even in the home state.

Re:Owning? Yes. Leasing? No. (1)

mabhatter654 (561290) | more than 3 years ago | (#36757574)

The same is true of retail space. The vast majority of malls fall under the same thinking... Just a glorified "storage shed" that the Gap or Apple dosen't own either. Even less so than a server in most cases.

I think states need the money. I have always thought the way to get the money was through the credit card banks. They are not licensed to operate unless they follow whatever laws the state wants. They have your legal address and s business relationship IN your locality, so they can easily calculate your sales tax, leaving interstate retailers free to do their work!

Re:Owning? Yes. Leasing? No. (0)

Anonymous Coward | more than 3 years ago | (#36759026)

So now you want to equate real property with virtual machines? Seriously? Can you not see a difference?

Re:Owning? Yes. Leasing? No. (1)

justsayin (2246634) | more than 3 years ago | (#36765416)

That can be debated. If you mean the electrons storing the zeroes and ones then they could be considered part of our physical world. Now if it's light then that's just a wave form and not truly physical. Any physicists left on /.? Good time to chime in.

Re:Owning? Yes. Leasing? No. (1)

blair1q (305137) | more than 3 years ago | (#36755378)

I'm purchasing from someone in Texas. He, and or I, have to pay tax on the leasing.

But the sales conducted through the internet that happen to be transacted by the server I leased? Apparently not a "presence" in the state.

Now, this opens up some interesting corporate structures (but in the state that brought you Enron, this ain't unusual). For instance, I build a huge server farm, and run my store on it. But I incorporate the store in the Cayman Islands and lease the server farm from myself.

I end up paying taxes on the leasing, but that's only a portion of the total cost of my business, and that's only a portion of the revenues, and none of the profits. If I lease it to myself at a loss to its own depreciation and cost of operation, I get a tax deduction on the server farm.

See, this is why being from Texas should be a disqualification for the Presidency. This is exactly how people down there do things.

Re:Owning? Yes. Leasing? No. (1)

UHBo2 (665759) | more than 3 years ago | (#36755540)

But this isn't about corporate taxes so much as it is about sales taxes. You aren't passing those sales taxes onto your customers so they are in turn doing more business with you. The server farm in Texas is paying the same property taxes regardless of who owns it or where the company is incorporated. Furthermore this isn't about a way to get around paying revenue to the federal government, only less revenue to the state of Texas so how this relates in any way to the presidency is moot.

Re:Owning? Yes. Leasing? No. (0)

blair1q (305137) | more than 3 years ago | (#36755980)

Wow. You were born in Texas, right? Or Oklahoma.

Re:Owning? Yes. Leasing? No. (0)

Anonymous Coward | more than 3 years ago | (#36756096)

This is about states trying to strongarm corporations into collecting sales taxes on their citizenry because they know that nobody reports the use taxes that every individual is required to report on their income tax forms and to pay. The use tax rate is, coincidentally, exactly the same as the sales tax rate.

The problem for the states is proviing that Joe Taxpayer purchased $X worth of goods from out-of-state and didn't self-report $X, but rather claimed $0 purchases were from out-of-state.

Going after every single citizen is simply too hard, so instead of fixing the law to make it easier for their citizens to know what their use tax burden is and to have a feasible way to enforce that, they're going after the corporations because there's fewer of them. The problem is that they have no power to regulate or compel businesses that have no nexus or presence in their state to do anything. So they're grasping at straws trying to stretch the meaning of "nexus".

This is the exact same issue that Amazon and California are fighting over. California considers the folks that are Amazon Associates who get paid by Amazon and who live in California to be enough to give Amazon "nexus" in California, and therefore compel Amazon to collect sales taxes for all sales to customers in the state of California. Amazon disagrees, and has terminated their Associate program for folks living in California precisely to avoid that situation. It is also why Amazon ships in all purchases to California citizens from a distribution center in Nevada.

The crux of the problem is that people are exploiting the loophole that says the seller doesn't have to collect sales tax from you when you buy out of state, and then turning around and cheating the tax code by not paying up their use tax obligation.The corporations are just pawns for the government to tax its citizenry, and it has been historically easier to get them to roll over and comply than to go after every single taxpayer.

One solution would be to compel companies to turn over customer identity and total purchase amount information based upon shipping information for all purchases delivered to that state. But companies, of course, would be a) loathe to do so (giving every state auditor a shot at going over your sales and customer data with a fine tooth comb? Yeah, right!), and b) have the legal right to refuse to comply with such a request from out-state tax collectors (because they have no nexus in that state, remember?)

And the Feds don't really care about Texas or California or any other state's interest in collecting taxes from their citizens, so they're not going to step in this mess either.

The popular conclusion that everyone is onto is that you can get away with tax evasion by purchasing stuff from out of state and forgetting to report it on the use tax line of your state income tax forms. Most states have now included a special line item for reporting (and paying) your use taxes on items you purchased from out of state and on which no sales tax was collected. And most citizens have decided that the risk of getting caught is about zero, even though there are penalties for filing a false state tax return.

The legislatures can suck it, and try the novel approach of actually doing their jobs, managing the state's resources better, and accepting the fact that they will never ever get a 100% collection rate on any kind of tax. The moral is don't enact stupid taxes that you'll never significantly collect on.

How about treating tax abatements and tax incentives (i.e. giving away income) as an actual expense (which is what it is, you're spending tax dollars you would have collected otherwise and giving it back to your buddies^Wsupporters instead) and require the same justifications and oversight and budgeting required for any other expenditure. It gets a lot harder to explain to your constituents that the schools don't have funding because you gave that money to your nephew's (or big donor's) company doing a "land development" deal in a "blighted" community that just has to have another strip mall or big box store. Cry me a river.

Re:Owning? Yes. Leasing? No. (1)

Grishnakh (216268) | more than 3 years ago | (#36757144)

This is the exact same issue that Amazon and California are fighting over. California considers the folks that are Amazon Associates who get paid by Amazon and who live in California to be enough to give Amazon "nexus" in California, and therefore compel Amazon to collect sales taxes for all sales to customers in the state of California. Amazon disagrees, and has terminated their Associate program for folks living in California precisely to avoid that situation. It is also why Amazon ships in all purchases to California citizens from a distribution center in Nevada.

I don't believe it's exactly the same. One big problem with Amazon, from what I've read, is that they have a couple of design centers there in Silicon Valley, where they designed the Kindle for instance. Much more than affiliates, that constitutes a "significant presence" in the state. I don't know how they're going to get out of that one.

Didn't Amazon go through this a year or two ago with New York too? And cancel all their affiliates there too? Of course, there it was much easier, as it's probably safe to assume they had no other business operations in NY (NY isn't exactly a software engineering and electronics hub like Silicon Valley), so kicking out their affiliates was probably all they needed to do to avoid sales tax in NY.

One thing I can't figure out is how I don't pay sales tax on Amazon purchases. I live in Tempe, Arizona (part of the Phoenix metro area), and I'm pretty certain that Amazon has a distribution center in Buckeye, another part of the metro area (just barely--they're about 30 miles from me!). So many Amazon shipments arrive very quickly for me. But AZ does have a sales tax, and a rather high one at that--almost 10% after you add in the municipal taxes. Did they negotiate some kind of agreement with the state I wonder, in exchange for locating a giant warehouse here and employing people?

Re:Owning? Yes. Leasing? No. (0)

Anonymous Coward | more than 3 years ago | (#36757686)

Sorry, we'll get back to our job creation, low unemployment, balanced budget and low tax burden and you can enjoy your record deficits, bank bailouts and union owned companies.

Fucker.

Re:Owning? Yes. Leasing? No. (0)

Anonymous Coward | more than 3 years ago | (#36757760)

Though I replied to parent. Sorry.

Re:Owning? Yes. Leasing? No. (1)

Bartles (1198017) | more than 3 years ago | (#36755574)

If finding the most efficient way to run a business within the rule of law, is a disqualification for President, we are doomed.

Re:Owning? Yes. Leasing? No. (0)

blair1q (305137) | more than 3 years ago | (#36755992)

If hiding income from your neighbors in order to duck your responsibilities to your neighborhood is not illegal, we are doomed.

Re:Owning? Yes. Leasing? No. (1)

Bing Tsher E (943915) | more than 3 years ago | (#36756302)

If we can't say 'fuck off' to neighbors we don't consider welcome on our property, liberty is doomed.

I bet you live in a place with a "Homeowner's Association."

Re:Owning? Yes. Leasing? No. (1)

justsayin (2246634) | more than 3 years ago | (#36765456)

The closer you live to a big city or highly populated place the more you want an HOA.

Re:Owning? Yes. Leasing? No. (1)

blair1q (305137) | more than 3 years ago | (#36766318)

Well, that's a statement that needs qualifying.

The more you want a simple means of securing your neighborhood, maybe.

That's if your HOA maintains a gate.

If your community is not gated, there is really nothing an HOA does for you other than keeping you from doing what you want to your house. Which is somewhat superfluous, because most municipalities have enough restrictions on what you can and can't have on your property, anyway. When it gets down to fining you for having topiaries or the shade of tan you use, HOAs become among the worst forms of government ever devised.

Re:Owning? Yes. Leasing? No. (2)

Grishnakh (216268) | more than 3 years ago | (#36757188)

You sound like you support paying sales tax on online purchases.

The problem is, if $ONLINE_SELLER doesn't have a physical location in your state, then they are NOT your "neighbor". They have zero responsibility to pay taxes in your state, because they are not receiving any services from that state.

Suppose you go on a web site, and buy a $widget from some guy in Russia. He sends it to you through snail-mail, and you get it a month later. All you paid was the price of the item, plus $3 shipping (or whatever). Do you think this Russian guy is obligated to send payment for sales tax in to your state's government? Why? Why should he have any obligation to make a payment to a foreign government over a law they have, which doesn't affect him since he's never set foot in your country, let alone your state?

It's no different when you buy an item from someone in another state. If your state wants to charge taxes on things purchased out-of-state, that's what use taxes are for. If they can't effectively enforce use taxes, that's their problem. They can't force people in other states (or countries) to police their own citizens for them.

Re:Owning? Yes. Leasing? No. (1)

ultranova (717540) | more than 3 years ago | (#36760100)

The problem is, if $ONLINE_SELLER doesn't have a physical location in your state, then they are NOT your "neighbor". They have zero responsibility to pay taxes in your state, because they are not receiving any services from that state.

Sure they are: they can only sell to you, because your state has enough functional infrastructure for you to make the purhcase and them to deliver the goods. Additionally, since your states share a currency, they benefit from your state enforcing anti-counterfeiting laws - and speaking of that, Amazon probably wouldn't like to compete with a piratical bookseller, now would it?

Suppose you go on a web site, and buy a $widget from some guy in Russia. He sends it to you through snail-mail, and you get it a month later. All you paid was the price of the item, plus $3 shipping (or whatever). Do you think this Russian guy is obligated to send payment for sales tax in to your state's government? Why? Why should he have any obligation to make a payment to a foreign government over a law they have, which doesn't affect him since he's never set foot in your country, let alone your state?

What you describe is true enough, and a huge problem with free trade: since foreigners are out of your government's reach, they can dodge its taxes, giving them an unfair advantage. This, then, twists the market to the detriment of everyone - but the short-term benefits are such that people do it anyway.

That's why I oppose free trade, and instead propose a model where tolls are used to balance these problems, so that sellers compete on their actual merits, not on whether they can dodge taxes or not.

It's no different when you buy an item from someone in another state. If your state wants to charge taxes on things purchased out-of-state, that's what use taxes are for. If they can't effectively enforce use taxes, that's their problem. They can't force people in other states (or countries) to police their own citizens for them.

So I guess this leaves US member states with all the drawbacks (can't enforce laws in other states) and none of the benefits (can't use tolls) of being sovereign states. You do realize what the obvious solution to that is, right?

Re:Owning? Yes. Leasing? No. (1)

Zenin (266666) | more than 3 years ago | (#36760822)

The problem is, if $ONLINE_SELLER doesn't have a physical location in your state, then they are NOT your "neighbor". They have zero responsibility to pay taxes in your state, because they are not receiving any services from that state.

The retailer isn't the one paying the sales/use tax, so who cares what services they do or don't receive?

It's the customer who pays sales/use tax, to their local government, for services they directly receive. Currently the customer is legally obligated to pay local sales tax (aka use tax) on any and all purchases made from "sales tax free" vendors like Amazon, etc. That has never changed.

That almost no one actually pays their use taxes doesn't mean they do not already exist. What we have here is a collection issue, not a tax issue. Traditionally retailers collected the sales taxes owed by the customer from the customer. That worked mostly ok until online sales skyrocketed... States and local governments are only trying to plug the new collection hole for existing taxes that are already owed, by demanding retailers step up to their traditional duty of collector for sales/use tax from customers.

Re:Owning? Yes. Leasing? No. (1)

blair1q (305137) | more than 3 years ago | (#36766398)

You didn't read the thread. I don't consider someone whose only activity in the state is leasing online capacity to be a presence in the state. They're a customer of a presence in the state.

The comment you're replying to here, though, is about someone who is physically in the state who abuses that structure by creating shell corporations to pretend not to be in the state.

Enron turned it into a macro and ran it recursively, reported massive revenues from the same dollar transiting all of its shells, and defrauded investors of $billions in the process.

The shell company would be the Texas State bird, if that honor weren't already held by the dodo.

Re:Owning? Yes. Leasing? No. (1)

sumdumass (711423) | more than 3 years ago | (#36756870)

This is no different then a New York company printing a mail order offer as a printing press in Texas and sending the offers to residents in California.

That's the only thing Texas is attempting to Clarify with this. The term shouldn't be a "business presence", it's properly refereed to as a "substantial business presence" and is most likely an attempt make the law on collecting sales tax jive with settled mail order law which the US Supreme Court has already handled (which is where the substantial business presence comes from).

I would say, your post is probably one of the biggest arguments for mental capacity testing for people who intend to vote. Let's just hope you are one of those stoners who does not leave the couch when it matters and sits back and complains about how everyone is ruining your ignorant dream of what the US is supposed to be like.

Re:Owning? Yes. Leasing? No. (1)

Billly Gates (198444) | more than 3 years ago | (#36759432)

Why are you bashing him?

Business is cutthroat and if he wont do these crazy things, then a competitor will and undercut him. If he has investors or is publically traded then it is downright illegal to not look after the share price and investor needs first. Substantial vs regular presence doesn't matter. Yes the SCOTUS ruled but it is hard to enforce. If one is based in the Caymen Islands then US law doesn't apply as it is not an American company.

I maybe thinking conservative here, but lowering taxes and regulations do attract business. Infact, many pig farms in Texas are swedish but are there to avoid taxes and environmental regulations which mean more jobs for ranchers. This is economics 101 whether you like it or not and want the beancounters who run the fortune 1000 companies look for when asking for their raises each year.

Texas can get its revenue from these companies hiring more people and raising salaries and having employers/workers buy more products in Texas.

Re:Owning? Yes. Leasing? No. (1)

jonbryce (703250) | more than 3 years ago | (#36760872)

The hosting provider has a business presence in the state and has to pay taxes. You don't.

Re:Owning? Yes. Leasing? No. (1)

EvilStein (414640) | more than 3 years ago | (#36762178)

"See, this is why being from Texas should be a disqualification for the Presidency. This is exactly how people down there do things."

What, that people actually clarify laws and make common sense decisions?

Let me guess, you're in California, huh? That would explain the staggering ignorance.

Re:Owning? Yes. Leasing? No. (1)

black soap (2201626) | more than 3 years ago | (#36763362)

Yes, all of us in Texas have cleverly avoided paying state income taxes.

Re:Owning? Yes. Leasing? No. (1)

pfleming (683342) | more than 3 years ago | (#36771234)

Woosh! The question is on who?

Re:Owning? Yes. Leasing? No. (2)

Bengie (1121981) | more than 3 years ago | (#36755524)

How is this any different from picking up a truck or generator from an equipment rental place, or renting storage in a storage facility? You are renting time and space on the server. If the company you rented the server from is in Texas, then that company should pay Texas sales tax.

Lets say all states use this logic.

I purchase a song from my Android for $1 from Google through their cell company. Google pays a sales tax in their state, then they pay a sales tax in which the server is located, then the pay a sales tax for the state the cell company is in.

Keep daisy changing this idea over all 50 states, and you have 0 sales taxes to pay. Assume 5% sales tax, times 50 states, and you have 250% sales tax.

You see the flaw in this logic?

Re:Owning? Yes. Leasing? No. (1)

wagnerrp (1305589) | more than 3 years ago | (#36755704)

The summary claimed that the law would have required hosting companies would be required to collect sales tax from their customers. What that means to me is a company like Rackspace would charge Google sales tax for leasing servers. If the law were instead about having Google pay sales tax for services they provide through those servers, I don't understand why Rackspace would have any part in the matter.

Re:Owning? Yes. Leasing? No. (2)

dakameleon (1126377) | more than 3 years ago | (#36756828)

That's why we RTFA. It's not about hosting companies collecting sales taxes from their customers at all; the question is whether having hosting in Texas amounts to a physical presence.

The result of the physical presence in Texas, prior to the clarification, would be any commerce conducted on that server would be subject to Texas sales and/or use tax - meaning even if the company does its main operations in a different state and their customer is in a third state, they could have been liable for Texas tax, as though the operation was being handled through a Texas store-front.

What this bill clarifies is that simply having hosting is not the same as the physical presence. Rackspace et al were worried that if this was not the case, customers of theirs (the Googles etc) would go elsewhere to avoid slugging their customers the Texas tax.

Re:Owning? Yes. Leasing? No. (1)

Only a-z,A-Z,0-9,$_, (2368852) | more than 3 years ago | (#36763124)

"any commerce conducted on that server would be subject to Texas sales and/or use tax".

Wrong. They would be only be required to collect sales tax from customers who are Texas customers.

Re:Owning? Yes. Leasing? No. (2)

vux984 (928602) | more than 3 years ago | (#36755914)

If the company you rented the server from is in Texas, then that company should pay Texas sales tax.

I agree. However, this case is a bit more complex.

Here we have company A, in texas, with a stack of servers located in texas. They have a presence in texas and nobody is arguing about that.
Then we have company B, in alabama, he's a web developer who provides hosting services to his customers.
Company B leases servers from company A.
Then we have company C, in michigan, they sell socks. They hired B in Alabama to design and host a web store.
Then we have Mommy D, in california. She has a pair of socks that need replacing. She orders some online from Company C.

The questions at hand are:

Does company A collect Texas state taxes from company B for its hosting service. Reasonable people would say this is reasonable.

Does company B have to collect Texas state taxes from company C simply because the site B is hosting for C is on a server B is leasing from A is in texas. Reasonable people would say this is silly.

Finally does company C in michigan have to collect Texas taxes from Mommy D in California simply because company C is hosted by company B in alabama which leases servers from Company A in texas?

Reasonable people are asking what kind of crack you'd have to be on to think this is reasonable.

Your rented storage example doesn't really capture this situation.

Re:Owning? Yes. Leasing? No. (1)

dakameleon (1126377) | more than 3 years ago | (#36756806)

The analogy that would apply is more like Company A is a trucking company based in Texas, company B is in Alabama and customer C is in California. Customer C calls Company B to order a product, which Company B ships to the customer through Company A. Just to nail down the analogy, the truck travels through Texas in the process of delivering the good.

The law clarifies that Company B has no obligation to charge Texas sales and/or use tax to Customer C because they happened to use Company A based in Texas.

Re:Owning? Yes. Leasing? No. (0)

Anonymous Coward | more than 3 years ago | (#36761262)

I think it has do with your impact on that state. Is your business actually costing the state money by being on a server in the state no. The State is payed for the server through taxes from the hosting company and it's employees. If you where at physical location your could need local fire,medical,police. You would likely use other services like roads.

Re:Owning? Yes. Leasing? No. (1)

ultranova (717540) | more than 3 years ago | (#36760026)

If I can move my business out of the state using the dd(1) command, I don't have a presence there.

If you have something you can move out of the state, how can you claim you had no presence there?

If I build a shop or an office in a truck trailer, I can move it very easily; does that mean I don't have a presence where ever the trailer currently is?

Re:Owning? Yes. Leasing? No. (0)

Anonymous Coward | more than 3 years ago | (#36760836)

Simple. I don't even have to know I'm moving my presence out of state if I'm moving my web store from one host to another. For all I know, I'm moving it from one machine to another sitting right next to it on the same rack. On the other hand, I could be moving it to a machine on the other side of the country.

If I'm moving my office trailer, I have to know which locale the trailer is in and to which locale it will be moving.

2nd.. moving a trailer office/shop physically alters the services offered in that locale. Moving a web shop physically alters the services offered .. nowhere. If I had a texas webhost, texans can buy stuff from it. If I move to a nevada webhost, texans can still buy stuff from it.

Example China vs Texas ala Apple (1)

Kamiza Ikioi (893310) | more than 3 years ago | (#36761516)

I understand your analogy, but that doesn't apply to any other leased presence. (I'm not disagreeing with you, I'm agreeing but for a totally different reason.) In today's world, the idea that a server as a business presence seems quite obvious on one hand, and quite obviously not on the other.

So, I'll take a different tact. It's a factory. If I have a server in China, but am selling shoes in the US, my presence in China is as a factory, leased or not. I use power located there, electricity located there, and physical workers somewhere maintaining things that keep that server going.

Now, Apple can either lease a building and do business there, or it can contract a company there to do its work (which is what it actually does). The fact is, though, that no Chinese authority mistakes a contracted company for anything other than what it really is. Though not owned, it's a presence for Apple. And that presence means that China knows that when it talks to the management of that factory, it is talking to Apple.

In the virtual space, though, considerations ARE different. In the case of Apple, they're talking about labor and safety. In the server market, this is far, far from being the case, at least in the US. While I'd say you have a factory in Texas, for all practical intents and purposes, you don't have "factory issues" in Texas. While technically there, you're not practically there so long as you are contracting with a company that IS there, and who rightfully must take into account taxes, labor laws, etc.

So, I agree with you, but more for practical reasons of another company taking your place, paying your state income taxes for its employees, etc. rather than you owning the building and having employees there who fall under labor and tax laws.

Good (1)

razvan784 (1389375) | more than 3 years ago | (#36754850)

Good. The Internet is non-local. The Internet is everywhere. says me "who have no further comments on the issue".

Re:Good (1)

jtownatpunk.net (245670) | more than 3 years ago | (#36755142)

Yeah. This decision actually makes sense. And California's state sales tax just dropped by 1%. And their vehicle license fees were cut almost in half. Did Alan Funt rise from the dead or something?

Seriously, tho, the decision makes sense. In this day of cloud computing and redundant data centers, it could be hard to tell just where your active data is residing at any given time. Okay, it's still pretty easy right now but ten years from now, it won't be such an easy thing to know.

Re:Good (1)

MaxBooger (1877454) | more than 3 years ago | (#36755234)

Not a decision. This is Texas House Bill 1841, so it isn't the result of a lawsuit.

Re:Good (1)

Necroman (61604) | more than 3 years ago | (#36755236)

If you use amazon hosting or vps type solutions it is easy to tell. If you are using google sites or google app engine, you have no idea where your data is being served from.

There is no such thing as a non-free market (0)

Anonymous Coward | more than 3 years ago | (#36754884)

The government is just a very aggressive business that happened to achieve a legal monopoly under a free market.

Licensing (2)

Synerg1y (2169962) | more than 3 years ago | (#36754948)

Pretty sure your taxed in the state your licensed, and to obtain that license you have to be physically in the state. Reading the article, it looks like they are more amending a "grey" law to make it more clear with the tightening economy.

Sales tax vs. Corporate taxes (2)

oneiros27 (46144) | more than 3 years ago | (#36755134)

The issue is the requirement to collect sales tax -- ie, the reason that Amazon keeps dropping affiliates in selected states.

Basically, most states have laws that say that residents have to pay sales tax on everything they buy in the state. In my case, for Maryland, there's a line on the state income tax forms where I'm required to declare all purchases I purchased via mail-order where the company didn't already collect sales tax.

Now, companes who have a presence in the state are required to collect sales tax in that state. So when I buy from Amazon, I'm required to pay it directly to the state, rather than Amazon collecting it at the time of sale, as they don't have a presence in Maryland.

The problem is, sales taxes are *really* messy. What gets taxed? Food doesn't in Maryland ... but it does in DC if it's sold individually ready to eat. (which I don't think would count for mail order), so you have to know if a given item is or isn't taxed in each state. Then you also have cases where it's not only the state that has sales tax authority, but also the town or county ... so you might have an area that's differently taxed.

And then you get into the message cases where the municipality doesn't match up with the postal designation, so you can't just rely on the zip code or city on the shipping address to determine taxing district.

This has been a long-running issue since at least the late 1990s, when I first saw mention of attempts to come up with simpler taxing rules for mail order companies, but I don't know if anything's ever come out of those efforts.

Re:Sales tax vs. Corporate taxes (1)

Anonymous Coward | more than 3 years ago | (#36755536)

I sincerely believe Maryland is living in a fantasy world where they think any taxpayer is going to take the amount of time needed to write down the amount they purchased that they need to pay sales tax on. Further, if the state investigates the matter with an individual taxpayer it will never recoup in fines/taxes what it will cost to do the investigation. The reality is that the US needs to modernize its tax code and it's becoming more painfully obvious every year.

Re:Sales tax vs. Corporate taxes (1)

enjerth (892959) | more than 3 years ago | (#36756984)

More than that. If you buy a product across state lines and pay sales tax in that state, and then you bring that product to your home state and your state has a higher tax rate, you are (generally) subject to a USE TAX for the difference which you are supposed to volunteer in the same manner.

Re:Sales tax vs. Corporate taxes (1)

mabhatter654 (561290) | more than 3 years ago | (#36757836)

Exactly, that's the law, and totally Constitutional... YOU owe the use tax. This applies to thing like cars or machines that have titles ad well. It's just hard to get little people to comply. In the cast of something like a car, you pay th the state where you purchased, and submit the recipt in your state.. There's a formula for calculating the difference so you don't pay more than the highest rate one time.

I think states should just have credit card companies collect the fee as banks are licensed to operate in the state, for your location... Problem solved. There's no need to keep the more complex tax rates as things like food bought online aren't really necessities and the state can keep the locality taxes up-to-date or tell them to sod off. Local credit purchases would indicate the sales tax was already paid at the register, easy peasy!

Re:Sales tax vs. Corporate taxes (1)

demonlapin (527802) | more than 3 years ago | (#36757954)

Further, if the state investigates the matter with an individual taxpayer it will never recoup in fines/taxes what it will cost to do the investigation.

Ah, you are so limited in your thinking. All they have to do is throw a few people who declared nothing in jail for tax evasion (all you have to do for that is prove a single out-of-state transaction for which use tax is due) and then "suggest" that those who don't keep detailed receipts can elect to pay use tax on, say, $1000 worth of purchases for every $40k in income.

Re:Sales tax vs. Corporate taxes (1)

Synerg1y (2169962) | more than 3 years ago | (#36755706)

Maybe we need a new business class of company with it's own regulations and tax rules? :) I just don't see a way for companies to invest the capital up front to comply with tax rules if they were enforced harder. Maybe third-party payment vendors, but big MEH there.

sales taxes are *really* messy. (1)

wiredog (43288) | more than 3 years ago | (#36760982)

It's a db lookup, based on zip code. The tables already exist and are used by many stores already.

I'm waiting for states to start subpoena-ing the customer purchase histories of their residents from Amazon, and file tax evasion charges. "Buy from Amazon, go to jail!"

In the Red State (0)

Anonymous Coward | more than 3 years ago | (#36754958)

Texas gets more from the fed than they give in taxes, so they actually are a "Red" state, literally.

That may become an issue in the future for a variety of reasons.

Just sayin'.

Re:In the Red State (1)

h4rr4r (612664) | more than 3 years ago | (#36755004)

The entire middle of the country is that way. The people who vote for that party that claims to hate government intervention and spending are the same folks getting most of that government money. Every year the blue states on the coast pay federal taxes that are then given as subsidies to the people claiming to be against that sort of thing.

Re:In the Red State (1)

AvitarX (172628) | more than 3 years ago | (#36755056)

Of course the people in the blue states are for it, and developing can require subsidy.

Blue states are practicing what they preach, without locking anyone out do to political affiliation.

Re:In the Red State (1)

demonlapin (527802) | more than 3 years ago | (#36758008)

The people who vote for that party that claims to hate government intervention and spending are the same folks getting most of that government money

That's true of much of the military and some farmers. However, most of the recipients of federal money in the red states aren't the ones voting Republican, and most of the Republicans aren't getting federal money.

In the Red State, people have jobs... (1)

SuperKendall (25149) | more than 3 years ago | (#36755042)

Texas also created more jobs [wsj.com] than any ALL the other states combined since the recovery began, which is why people are flocking there, hence why currently they take in more federal money than they send out. That will probably change... and as you say, become an issue in the future, for a variety of reasons. Just not with the effects YOU are thinking of.

Re:In the Red State, people have jobs... (1)

UHBo2 (665759) | more than 3 years ago | (#36755596)

Over the past 25 years Texas has paid more to the federal government in taxes that it has received, but these numbers have been reversed over the past 5 years of public records, primarily because has had a large influx of new residents from other states.

Re:In the Red State, people have jobs... (1)

the eric conspiracy (20178) | more than 3 years ago | (#36756036)

I call bullshit. While Texas creates more jobs than any other state it DOES NOT create more jobs than the other states combined.

The problem is also how to do this without the low levels of educational attainment and high levels of poverty that plague Texas.

Re:In the Red State, people have jobs... (1)

black soap (2201626) | more than 3 years ago | (#36763602)

You are correct. From the article, Texas created only 37% of the net new jobs for the entire nation, which is less than half, but is still a pretty fucking amazing disproportion.

Re:In the Red State (1)

DigiShaman (671371) | more than 3 years ago | (#36755082)

And businesses are leaving California. The mass exodus started some time ago, and the pace is ramping up. CNN Money just posted an article on this very subject yesterday. So it could be worse for Texas, but not that bad.

http://money.cnn.com/2011/06/28/news/economy/California_companies/ [cnn.com]

Re:In the Red State (0)

Anonymous Coward | more than 3 years ago | (#36755486)

This is a lot like gas prices. The cure for high gas prices is... high gas prices. The cure for businesses leaving California is businesses leaving California. We saw this in the early 90s. They joked about the last person left turning off the lights. Then there was a dot-com boom. The West in general seems to be much more boom-n-bust than the rest of the country.

California sends more money to the Feds than it takes in. We'll see what a miracle Texas is when the Feds become more austere, or when inflation really hits, or if oil fails to keep pace with inflation.

A few bad quarters don't bankrupt a company. A few good quarters don't make a company a good long-term investment. Same deal with the states. Just as with companies, there's never any shortage of politicians (CEOs) to take credit for things with which they had nothing to do, or blame their predecessors for problems they cause.

As the ancient Chinese proverb goes, something like "success has a thousand fathers, failure has none".

Re:In the Red State (1)

Dahan (130247) | more than 3 years ago | (#36756312)

That's a fairly recent development though--in 2005, Texas only got back 94 cents for each dollar it paid out to the feds. And all states are getting more funds from the fed now (e.g., stimulus funds); in 2009, 47 states received more than they gave (the exceptions being Delaware, Minnesota, and New Jersey). Info on how much taxes were paid by residents of each state are at http://www.irs.gov/taxstats/article/0,,id=102174,00.html [irs.gov] and info on how much federal money went to each state is at http://www.census.gov/prod/2010pubs/cffr-09.pdf [census.gov]

Kill the bill (0, Troll)

DigiShaman (671371) | more than 3 years ago | (#36754962)

As someone living in Texas, I don't want this bill to pass. Keeping jobs in this state is more important in order to feed the local economy.

Re:Kill the bill (1)

characterZer0 (138196) | more than 3 years ago | (#36755022)

How would this law move jobs out of Texas?

Re:Kill the bill (1)

Anonymous Coward | more than 3 years ago | (#36755232)

It hurts hosting companies like I don't know, Rackspace and Softlayer. If out of state sellers avoid their cloud services based in Texas in favor of a cloud hosted out of a friendlier state, Texas loses data center business.

Re:Kill the bill (1)

Anubis IV (1279820) | more than 3 years ago | (#36759302)

You clearly misunderstood the bill then. The bill makes it so that companies can safely lease servers from those hosting companies in Texas. I.e. failing to pass the bill would have the effect you are worried about.

Re:Kill the bill (0)

Anonymous Coward | more than 3 years ago | (#36757508)

They will have to find some other taxes to raise. The money will come from somewhere.

Re:Kill the bill (1)

DigiShaman (671371) | more than 3 years ago | (#36757590)

Or the local government spends less. Ya I know, such arcane concept for many.

Re:Kill the bill (1)

Billly Gates (198444) | more than 3 years ago | (#36759370)

Well if I want to do a startup I wont consider Califronia beacuse it is expensive to live and I have to pay taxes. Texas offers me a great climate, cheap cost of living, no sales tax, and access to one of hte largest universities in the world at Uof T in Austin! Many companies like Motorolla and Blizzard have offices there for that reason.

Now if this passes I will consider Alaska, North Dakota, and Florida instead. They all suck in terms of education or climate, but a 10% tax would kill me if I am a tiny startup and do not have the capital like EBAY or Google.

Yes I may only hire 5 people and go bankrupt within a year, but I am not alone and accountants at the big companies only care about cheap cheap cheap prices and tax writeoffs. The beancounters are the new wave of MBA's and if they can find a place that is cheap, but also offers great employees where they can only pay 50,000 a year and live better than paying 85,000 a year in California then all is good for everyone. If the tax goes in they wont even consider Texas at all and pretend it wont exist. After all taxes = bad.

Re:Kill the bill (1)

Sponge Bath (413667) | more than 3 years ago | (#36755028)

Driving out hosting companies would help with local employment how?

Re:Kill the bill (1)

CHK6 (583097) | more than 3 years ago | (#36755200)

He's obviously confused from the heat. I'm glad Texas passed the ruling and I think the comptroller is still reeling from Amazon leaving Texas as is the local economy.

Re:Kill the bill (0)

Anonymous Coward | more than 3 years ago | (#36755510)

You don't make much sense.

Adding sales tax to all retail businesses leasing rackspace or machine time in TX will cause them to lease rackspace elsewhere. Empty racks = IT sector jobs moving out of state, exactly what you said you didn't want.

So they have a bill to prevent that, and... you oppose it? Which jobs exactly do you think will be kept in state by sales-taxing anyone with a server in TX?

Re:Kill the bill (1)

Compaqt (1758360) | more than 3 years ago | (#36760382)

The point of the bill is to stop the court ruling that says you might have to collect sales taxes.

So, in effect, the bill would be restoring the status quo ante.

So, I think you (and me, and other users of Rackspace et alia) want this bill to pass.

Re:Kill the bill (1)

ninthbit (623926) | more than 3 years ago | (#36761618)

If anything, this law would help create jobs. It demonstrates that the Texas government will actually clarify ambiguity, which in turn provides businesses such as webhosts the ability to operate in clearly defined guidlines. This encourages businesses, it says "host your servers here, we won't screw you with an outdated tax law."

Moving to the Cloud? (1)

dnahelicase (1594971) | more than 3 years ago | (#36754968)

This would be great for any company that has a "cloud" presence. Overnight businesses would reside in almost every state.

Re:Moving to the Cloud? (0)

Anonymous Coward | more than 3 years ago | (#36755164)

fuck the cloud

Re:Moving to the Cloud? (1)

ninthbit (623926) | more than 3 years ago | (#36761628)

Shhhh..... you're going to give the 49 other states some bad ideas on how to meet their boated budgets.

Re:Moving to the Cloud? (1)

Jason Levine (196982) | more than 3 years ago | (#36763720)

I could see the bill now:

Ordered: 1 Widget ($5 ea)
Subtotal: $5
Shipping: $2
Sales Taxes:
      Alabama: $0.20
      Alaska: $0.25
      Arizona: $0.22
      Arkansas: $0.18 ...etc...
Total: $23.34

Not for long! (0)

Anonymous Coward | more than 3 years ago | (#36755276)

> That's a big deal, since Texas is home to many of the
> industry's largest hosting companies

Not for long it isn't. Haven't states realized this yet? It is cheaper to take your business elsewhere than it is to pay taxes.

Cool state (0)

Anonymous Coward | more than 3 years ago | (#36755466)

Why is one of your hottest states "home to many of the industry's largest hosting companies"? Wouldn't Alaska be a far better state?

Re:Cool state (1)

Phibz (254992) | more than 3 years ago | (#36755786)

Geography.

Re:Cool state (1)

Grishnakh (216268) | more than 3 years ago | (#36757268)

I'm just guessing it's a few factors:

1) Geography, as the other poster said. Texas is right in the middle, so the average latency for all US customers would be lowest. Alaska is rather far away, and also not part of the contiguous US.

2) Skilled workers/population base. There's lots of people in texas, and plenty for running hosting companies. For any shortages in workers, it's not that hard to convince qualified people to move there, compared to Alaska, Minnesota, and other cold states. Austin has been a strong tech center for a while, and Houston and Dallas aren't very far away. Alaska, by contrast, has a tiny, tiny population (500k I think), has zero large cities, no tech hubs at all, so it's safe to assume there'd be a giant shortage of qualified workers.

Now, this doesn't explain why they don't locate in a tech city located in a more mild climate, such as Portland or Seattle. Both these cities are pretty strong tech hubs, probably not too hard to get people to move to, and they have a mild climate that isn't too hot in the summer (like TX), but doesn't have the brutal winters that places like Alaska and Minnesota do. They're not right in the middle like TX, but they're not that far away either. My guess is the lower salaries they probably pay in TX outweigh the increased A/C costs.

Re:Cool state (1)

demonlapin (527802) | more than 3 years ago | (#36758036)

Also: Texas has a lot of people. Hosting close to a lot of people is a valuable thing.

Re:Cool state (1)

Grishnakh (216268) | more than 3 years ago | (#36758220)

I'm really not sure what advantage there is to hosting being near people, except for employees. For everyone else, it shouldn't matter at all. If I'm running a website, I don't care if it's in my city, my state, or on the other side of the world, as long as the speed is good. Of course, this being the real world, the location can be important for latency reasons (it takes a small but not insignificant time for packets to travel from India, and this can make a difference to someone like Netflix or Amazon), and also for political reasons (you don't want to host your site in a country with laws against what you do, or that might be unstable).

Theoretically, if some hosting company located a giant data center in rural North Dakota, and got a bunch of qualified employees to move up there into a dormitory and work for peanuts and devote themselves to the company without worrying about anything outside the compound, then there's no reason I should prefer a hosting company in my local area to the ND one.

Now, if you're addressing the real-world fact that skilled employees aren't going to move en masse to a rural state, and companies need to go where the critical mass of employees are, and employees generally want to live in decent cities where there's lots of services (and perhaps also other competing companies to work for in case they need to quit their current job), I already addressed that in #2 in my previous post, but other than that, proximity to people shouldn't matter.

I have a small website, and I think it's hosted in the northeast somewhere. I could have picked one of the companies right here in my own town (Phoenix), such as GoDaddy, but I didn't, because location was absolutely irrelevant to me in choosing a hosting provider. It's not like I'm going to go visit the datacenter in person.

um, how would I know? (2)

Adam Appel (1991764) | more than 3 years ago | (#36755910)

What if I host images in CA and my database in TX? (and both states enact this kind of legislation) would my customers have to pay both state sales tax?

As it is I have no idea where my shared linux hosting account is. Now you want me to collect taxes there?

This is so simple even lawyers will have to make a run before messing it up (but I knows they'll try).

Re:um, how would I know? (1)

Billly Gates (198444) | more than 3 years ago | (#36759346)

You need a server to run the database and therefore you would pay in both states with taxes. I am not a lawyer and had a few drinks writting this so do not take my advice without consulting one. But it seems logical that of course agents in both states would LOVE your income and a server is a server whether it is just hosting HTTP connections or running ACID transactions in a database.

I was planning to use rackspace in San Antonio, but I wonder if I will be liable for taxes based on my provider? What a mess.

That is what bothers me in the recent trend is the fact that I would be double taxed depending on if more than one state deals with a transaction. For example if a customer purchases a widget from you or I in California, but it is hosted by rackspace how much do we pay in taxes. Do we pay California? Or Texas? Both states seam to scream BOTH! At that point I can't compete with brick and mortar stores unless they too pay both as a transaction is in multiple phases across several states.

I am no lawyer, but if these states get greedy and each one of course would want a piece of the action then we have a problem. What if I used a warehouse in New York ... another tax internet site state ... to complete the transaction between Texas and California? Do I pay triple?

This should be illegal as a violation of the interstate commerce clause in the constitution in which Amazon is fighting just this. It scares me and I can see traditional brick and mortar retail outlets banding together to shut e-commerce competition down.

Re:um, how would I know? (1)

frate (78476) | more than 3 years ago | (#36761792)

If you had reading comprehension you would realize that Texas passed a law stating you don't have to pay taxes to the State of Texas if you are hosting your servers there.

Why are there so many complete morons on /.?

how about the patent trolls? (2)

v1 (525388) | more than 3 years ago | (#36756692)

That "east district" in texas where all the trolls file their suits, doesn't that require a business to have a "presence" in texas, and thus jurisdiction? So maybe this is a good thing?

And you'd think it would also have the side-effect of a lot of companies leaving texas, leaving their server farm behind, to shed the liability of not only sales tax, but also patent troll targeting?

Re:how about the patent trolls? (1)

Anubis IV (1279820) | more than 3 years ago | (#36759340)

That "east district" in texas where all the trolls file their suits, doesn't that require a business to have a "presence" in texas, and thus jurisdiction?

As I recall, and IANAL, patent claims go through federal court, rather than state court, so you don't need to worry about jurisdiction and are able to file them at any federal court branch. Patent trolls happen to favor the branch in east Texas.

Also, the bill makes it so that they DON'T have to collect sales taxes if they lease servers in Texas, which should have the effect of drawing in more business, rather than pushing it away, since the people leasing the servers won't have to worry about taxes.

Re:how about the patent trolls? (0)

Anonymous Coward | more than 3 years ago | (#36766374)

Patent trolls don't sell anything, so I don't think they need to worry about sales tax issues.

Permit (1)

glorybe (946151) | more than 3 years ago | (#36757236)

If they needed a business license to open up then I would say that they have a business presence. But out of state companies that are hosted on the server require not license in Texas and therefore are probably not present. If that gate swings open at all it may be due to rulings involving things like local community standards which can apply criminal punishments for material simply on a hard drive within the state even when no locals see the info at all.

OT Why base in Texas? (1)

boreddotter (1836042) | more than 3 years ago | (#36757724)

"Texas is home to many of the industry's largest hosting companies — including Rackspace and SoftLayer, who have comments on the issue."

wouldn't be smarter to put those servers somewhere that has a cooler climate?

They should thank Amazon. (2)

Lord Kano (13027) | more than 3 years ago | (#36758690)

Amazon has shown how much money states can lose when they push the issue on what constitutes a "physical presence" in a state. The smart states will adapt. The dumb ones will keep bleeding jobs.

LK

And I thought Texas was against Taxes... (0)

Anonymous Coward | more than 3 years ago | (#36759088)

Isn't that what Rick Perry runs on?

As for Amazon, they should be taxed, they use the services the taxes provide.

Loss for Texas (1)

Billly Gates (198444) | more than 3 years ago | (#36759272)

You know Austin and Dallas were becoming quite an attractive alternative to California for starting a .com startup. Low taxes, low regulation, great climate, great universities, pro business politicians, very low cost of living, high tech industry, and a happy set of workers due to living in one of the cheapest cost of living areas. Austin is a very cool place to live in you ask anyone and why Blizzard moved part of their support from expensive Irvine. I love Austin. Great bars and nightlife and the fact that you can get a 1500 square foot house in there or Dallas when only making $40,000 a year. A steal compared to Calfironia where I would feel guilty paying entry level employees 40,000 a year knowing they will be in poverty in that salary.

Not anymore. If I have to pay taxes in Texas in addition to every liberal state which imposses additional taxes then I will look elsewhere. Maybe North Dakata, or maybe India?

I do not want to live in gawd North Dakota! Shudder, but a 10% sales tax will make or break my .com business I want to form. I love Texas the fact that I can get a mcMansion for pennies on the dollar compared to most of the country and get a sub tropical climate on top of that if I am as far south as Austin. But Texas is shooting itself in the foot. Maybe Florida with pro business govenor Scott can save me money instead? ... sigh

Education sucks, but I need to make money doing e-commerce to survive. I heard Alaska has no sales tax? Face the music that business will always go where it is cheaper. Yes U of T at Austin has 50,000 graduates with a great MBA, engineering, and computer scinece program. But, besides workers I need to make a profit and investors will be screaming to move to somewhere cheap where I do not pay it. Stupid Texas

Re:Loss for Texas (1)

Prez_n_Tenz (961802) | more than 3 years ago | (#36766128)

We're a non-US startup but decided to stick a couple of servers in a data center in Houston. Location wise it works for us for non-business reasons. I'm sure very state does this and it's probably my naivety but I was shocked when Harris County (Houston) hit us up for property taxes on the server.

When I looked at what I was paying for (local hospital, schools, roads, etc) I had to protest.
Does Texas get how the Internet works?

Just wanted to share that with anyone else this with anyone else that might have the same idea. It's not a huge tax but it's unfair if I don't get the benefit of the services. Mostly though it's just an irritating amount of paperwork and figuring out how to pay in USD. Texas doesn't do Paypal. ;->

Nike shox pas cher (0)

Anonymous Coward | more than 3 years ago | (#36759938)

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Check out these tax numbers (0)

Anonymous Coward | more than 3 years ago | (#36761160)

What about:
        0% import, export and excise duties;
        2% profit tax on export profits;
        0% sales tax;
        0% land and property taxes.

Check IT out @: http://www.curacao-chamber.an/info/4c_3.html

Taxes:0%import,export;2%profit & 0%sales TAX (0)

Anonymous Coward | more than 3 years ago | (#36764926)

Incentives

The tax facilities offered to E-Zone companies in the E-Zones in Curaçao are:

        0% import, export and excise duties;
        2% profit tax on export profits;
        0% sales tax;
        0% land and property taxes.

Source: http://www.curacao-chamber.an/info/4c_3.html

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