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Texas and Taxes: Is a Server a Business Presence?
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."
If I can move my business out of the state using the dd(1) command, I don't have a presence there.
Good. The Internet is non-local. The Internet is everywhere. says me "who have no further comments on the issue".
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.
This would be great for any company that has a "cloud" presence. Overnight businesses would reside in almost every state.
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.
How would this law move jobs out of Texas?
Go green: turn off your refrigerator.
Driving out hosting companies would help with local employment how?
Texas also created more jobs 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.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
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.
Wow, sent an e-mail as suggested when clicking on "use classic" banner, and got a fast response that addressed my msg
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/
Life is not for the lazy.
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.
Build it, and they will come^Hplain.
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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.
Geography.
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).
They come in the dark, only in the darkest.
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 and info on how much federal money went to each state is at http://www.census.gov/prod/2010pubs/cffr-09.pdf
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?
I work for the Department of Redundancy Department.
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.
Or the local government spends less. Ya I know, such arcane concept for many.
Life is not for the lazy.
"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?
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.
Also: Texas has a lot of people. Hosting close to a lot of people is a valuable thing.
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.
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
"Hi. This is my friend, Jack Shit, and you don't know him." - Lord Kano
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
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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 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.
http://saveie6.com/
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.
I'm not a lawyer, but I play one on the Internet. Blog
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!"
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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.
I8-D
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."