Sales Tax on Web Hosting Services

Traditionally, web hosting services allow a company to make its website accessible to the internet or the World Wide Web. This is accomplished by the web hosting companies by providing customers with both hardware (servers and data storage) and connectivity to the internet. Today, web hosting companies such as GoDaddy and HostGator have expanded their services beyond domain names and hosting. Most companies offer an array of website and business services such as design, marketing, and advertising services.

Many states tax the sale of tangible personal property (“TPP”) and services differently. This is a key distinction when discussing sales tax. However, even though there may be a component of rental of server space, most states have concluded that web hosting is a service. Out of the 47 states that have a sales tax, including DC, eight tax web hosting services.

States That Tax Web Hosting Services

States that Tax Web Hosting Services, Web Hosting Services,

There are several key items to note in the law of several states. In Texas, 80% of the charge for web hosting services the taxable as data processing. In Connecticut, web hosting is also taxable as data processing. However, data processing services are only taxable at a rate of 1%. In Ohio, web hosting is only taxable if sold for use in a business.

For many of the states that exempt web hosting, it is important to separate other taxable items from the web hosting charges. Bundling taxable and exempt services and charges typically make the entire charge taxable. California exempts web hosting to the extent that no TPP is transferred to the customer. Many states such as Georgia and Kansas state that taxable software charges must be separately stated. Other states such as Kansas and Massachusetts will tax the web hosting even if separately stated if its mandatory or contractually required as part of a software sale.

PMBA helps companies across the globe deal with complex sales tax questions. If you have any questions about this article or any other sales tax topic, please email us at info@pmbusinessadvisors.com

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