Arkansas: Cloud Based Software Application Not Subject to Sales and Use Tax

The Arkansas Department of Finance and Administration recently addressed the taxability of a company’s cloud-based networking service. The company was selling a cloud-based software application networking service that allowed customers to optimize their internet usage. The software’s features included monitoring and reporting on a customer’s internet service provider’s performance, applying the customer’s unique service preferences, and directing customer internet traffic based on real-time usage and diagnostics. While customers were provided with hardware, ownership of the hardware was maintained by the taxpayer and the temporary transfer was treated as a rental subject to sales and use tax. With regard to the company’s cloud-based networking service, the Department first determined that the company’s customers were not receiving software in a tangible form and were merely operating the software online. Under Arkansas law, providing access to, and use of, software over the internet is not a specifically enumerated taxable service. Therefore, Arkansas sales and use tax did not apply to the company’s software application. For more information on Opinion No. 202000903 please contact Michael Andruchek.