A Dallas tax services firm - called simply Ryan - first noted the state's tax letter from May 31. That letter ruled cloud operations are fully taxable, assuming the end user is in Pennsylvania. "The ruling represents a marked departure from the department's earlier treatment of cloud computing. Prior department guidance advised that access to software solely through the internet was not a taxable transaction, as long as the server did not reside in Pennsylvania," said a statement issued by Ryan.

For example, let's say Sears buys some SAP suite and installs it in a public or private cloud, and then employees in Pennsylvania Sears stores use the software. Under the new ruling, Sears has to pay sales/use tax on the purchase (including, apparently, purchase of maintenance contracts, which provide additional software) as if it were purchased in Pennsylvania, prorated to the number of employees it has in that state.

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Keywords: saas, supply chain management IT, value chain IT, supply chain solutions, supply chain systems, retail supply chain, U.S. states' taxing authority of online sales