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Texas and Taxes: Is a Server a Business Presence? 103

Posted by samzenpus
from the do-you-take-virtual-money? dept.
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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Texas and Taxes: Is a Server a Business Presence?

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  • by blair1q (305137) on Wednesday July 13, 2011 @04:33PM (#36754828) Journal

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

    • by TheGratefulNet (143330) on Wednesday July 13, 2011 @04:44PM (#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.

    • by wagnerrp (1305589)
      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.
      • by Pharmboy (216950)

        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 shipp

        • 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 you

        • 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.
      • by blair1q (305137)

        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 payi

        • by UHBo2 (665759)
          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.
          • by blair1q (305137)

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

        • by Bartles (1198017)

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

          • by blair1q (305137)

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

            • 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."

              • The closer you live to a big city or highly populated place the more you want an HOA.
                • by blair1q (305137)

                  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

                  • I was not thinking about security. Property values were my concern. If you have an HOA it tends to make people do their maintenance and mow the yard. You know, kind of make all the McMansions look the same. I see them as a necessary evil because if there is some way your neighbor can screw things up believe me they will. Speaking as an Ex-VP of my own HOA. Did my time in the fish barrel. Do not like HOAs just recognize the need.
            • by Grishnakh (216268)

              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 whateve

              • by ultranova (717540)

                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 - an

              • by Zenin (266666)

                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

              • by blair1q (305137)

                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 de

        • by sumdumass (711423)

          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

          • 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 re

            • by sumdumass (711423)

              I'm bashing him because he presents it as if it some new bad thing when in fact, it's already addressed by other laws and what is not addressed, is already legal and in practice. I do not understand why some people think that doing something that is not against the law is bad when no law prevented them from doing it. The essence of freedom is being able to do anything unless a law bars it. We do not need laws telling us what we can do.

              BTW, the US can enforce it's laws in the cayman islands when those compan

        • by jonbryce (703250)

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

        • by EvilStein (414640)

          "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.

        • Yes, all of us in Texas have cleverly avoided paying state income taxes.
      • by Bengie (1121981)

        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?

        • by wagnerrp (1305589)
          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.
          • 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, a

            • "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.

      • by vux984 (928602)

        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 t

        • 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.

    • by ultranova (717540)

      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?

    • 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 ther

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

      • Not a decision. This is Texas House Bill 1841, so it isn't the result of a lawsuit.
      • by Necroman (61604)

        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.

  • 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.
    • 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

      • by Anonymous Coward

        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.

        • by enjerth (892959)

          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.

          • 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 opera

        • 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.

      • by Synerg1y (2169962)
        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.
      • 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!"

  • 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.

    • How would this law move jobs out of Texas?

      • by Anonymous Coward

        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.

        • 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.

      • 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 st

    • Driving out hosting companies would help with local employment how?
      • by CHK6 (583097)
        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.
    • by Compaqt (1758360)

      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.

    • by ninthbit (623926)
      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."
  • This would be great for any company that has a "cloud" presence. Overnight businesses would reside in almost every state.
    • by ninthbit (623926)
      Shhhh..... you're going to give the 49 other states some bad ideas on how to meet their boated budgets.
    • 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

  • 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).

    • 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

    • by frate (78476)

      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 /.?

  • by v1 (525388) on Wednesday July 13, 2011 @07:19PM (#36756692) Homepage Journal

    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?

    • 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.

  • "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?

  • by Lord Kano (13027) on Wednesday July 13, 2011 @11:09PM (#36758690) Homepage Journal

    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

  • 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 th

    • 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 migh

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