Taxing the cloud: Should businesses be exempt?

Note* - The purpose of this article is to highlight the potential dangers of giving governments the power to tax internet-related services (without providing any quantifiable benefit(s) in return).  This piece is not meant to stoke the fires of any ongoing political debates or lessen anyone’s viewpoints; it is merely an attempt to inform interested parties about current events and trends within the cloud computing community in order to preserve the long-term integrity and viability of the field and market itself.  

Why don’t we begin by introducing an illustrated point?   Let’s say that you and I are both farmers.  One day, I decide to cross-pollinate some different species of plants and quite by accident, end up creating a very useful commodity (with some unique features that perhaps provide beneficial effects to crops or livestock).   For instance, it could be that this new plant helps to ward off disease from pigs or cattle.

Seeing the potential value in this, I decide to meet with you so that I can explain the benefits of this plant or feed.   In a very short amount of time you come to understand the potential long-term health benefits associated with this plant and decide to order several bushels to feed to your cows.  In this type of scenario, I did all the work, own the land and transport my own goods to potential customers; in other words, per this example – I built it without using anyone else’s help, services or assets.

The question is, if a government agency tried to tax this invention (and/or the resulting commerce from it), aren’t they really just inhibiting growth?   Furthermore, why should any agency be able to collect money from anyone if they’re not using those accumulated funds to improve or provide anything in return?  Isn’t this sort of predatory activity in essence a form of punishment that’s directed toward any businessperson who seeks to step beyond what’s considered to be “normal business”?

In short, this is exactly the question that’s being asked by many lawmakers in the US right now with regards to cloud computing. Perhaps one of the more interesting examples of this ongoing debate is taking place in Idaho, of all places.  Getting right to the point – it appears that some of Idaho’s “high-tech businesses” have recommended steep taxes on all cloud computing services.  They have done this in response to actions carried out by their state government with regards to “shaking down” businesses for additional taxes.

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The argument goes like this: some are trying to group all cloud computing services as software services (and software is taxable property in that state)   Ergo, some are interested in purporting that anything that uses software or delivers a service that relies on software, is in fact – software.  Not only is this a very obvious attempt by certain individuals to capture a large portion of the profitable success of these cloud computing companies but one might also question whether or not there are individuals working behind the scenes to put the legislation in place.  After all, the official narrative only states that it is “Idaho’s high-tech companies” that want to push for this tax legislation (who are these institutions, what are their names?).  Could it be that they are working hand-in-hand with politicians to ensure that some of that money is distributed among their own pet government projects (or even personal bank accounts)?  Of course this is highly speculative, but it’s not as if we’ve never seen this sort of activity around the world before; there are literally hundreds of examples of similar extortion schemes that have been played out across the globe in the last decade or so.

Why is the cloud tax dangerous, you ask?  Well, think about it.  Every single day you hear on the news and financial channels that Western governments are heavily indebted and on the verge of bankruptcy; obviously, they aren’t capable of effectively managing the money that they are already collecting.    In essence, giving any government Carte Blanche (free reign) to tax cloud computing will surely drive the industry into a tailspin, seriously inhibit long and short-term growth and make it uneconomical for companies to invest in research and development.  Plus, we’re talking about a technology (cloud computing) that’s essentially designed to help businesses grow in terms of their technical   capabilities, so what sense does it make to tax something that’s designed to help businesses expand and evolve?  Doesn’t that defeat the purpose of the technology in the first place?  Isn’t a cloud tax akin to sticking a high-powered car in a muddy ditch, where its wheels just keep on spinning without actually moving or going anywhere?

As for our Idaho example; luckily, individuals like Jay Larsen, CEO of the Idaho Technology Council, have stepped in to bring forth an air of sanity to this ongoing madness.  He’s urging lawmakers in that state to avoid creating a precedent whereby any governmental agency has the power to effectively ‘tax a cloud business to death’.  Here’s what he had to say, in his own words -“This tax has caused a lot of people to consider moving their operations out of the state so they would not have to pay that tax”.  Clearly, such moves will only push tech businesses out of these states which adopt these tax measures.  Eventually however, it’s possible that they might be pushed out of democratic-style government’s altogether once the big corporations determine that those national governments are setting the price of doing business too high.  Let’s hope that it doesn’t come to that.  Cloud computing should remain open and free to develop without the constant interference of politicians or mega-conglomerates (with loose connections to the political sphere) who might very well be seeking to siphon off of its successes.

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Get in the game – Get Cloud Certified today – Affordable and Complete Packages – Become a force to be reckoned with in the IT world – Secure a great future career
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