The Revenue Legal Counsel division of the Arkansas Department of Finance and Administration published a Revenue Legal Opinion on May 6, 2021 (dated March 25, 2021) determining that cloud-based software that allows customers to monitor and prioritize the usage of internet bandwidth is not taxable. The taxpayer sells a cloud-based service (Saas) that customers purchase at certain speed levels, such as 100Mbps, for a recurring monthly fee. Customers also rent a taxpayer-provided router (sales and use tax is collected on the rental fee) to connect to the taxpayer’s network servers. The service then allows customers to prioritize and allocate bandwidth across the cloud-based applications they use, and to re-route internet traffic as necessary to avoid internet service interruptions. The Department determined that because the taxpayer’s customers do not receive the software in a tangible form which is only operated online, the software was not taxable as tangible personal property and the Arkansas tax code does not “specifically enumerate the service of allowing access to, and use of, software over the internet as a taxable service.”
