Mississippi: Proposed Regulatory Amendments Would Tax Cloud Computing

Recently, the Mississippi Department of Revenue issued proposed amendments to an existing regulation addressing the tax treatment of computer equipment, software, and certain related services. If adopted, the proposed amendments would expand the sales and use tax to services delivered via Software as a Service, Platform as a Service, Infrastructure as a Service, and other cloud computing models. The amendments would also define “Software as a Service” as a “software hosted and maintained by a third-party provider and delivered to customers over the internet as a service.” Probably, the most significant revision to the current regulation is the deletion of a sentence providing that software maintained on a server located outside the state and accessible for use only via the Internet is not taxable. While the tax treatment of software in Mississippi is not particularly clear, the proposed amendments would appear to significantly expand the state’s sales tax base. The amended regulation would also provide that sales of software or software services transmitted by the Internet to users making first use of such software or services outside of Mississippi are will be treated as occurring outside of Mississippi and exempt from sales tax. Computer software is redefined under the proposed amendments as “computer data, program or routine, or any set of one or more programs or routines, which are used or intended to cause one or more computers, pieces of computer-related peripheral equipment, automatic processing equipment, or any combination thereof, to perform a task or set of tasks.” The Department did not schedule a public hearing regarding the regulation, and it will go into effect October 24, 2021. Any comments on the regulation should be submitted to the Department prior to that date. Please contact Randy Serpas with questions.