Were remote cloud storage, virtual compute instances, and related data-transfer fees subject to Florida sales tax or CST?

Plain-English summary

The Florida Department of Revenue concluded that remote storage, virtual computing, and related data-transfer fees were not subject to Florida sales tax or communications services tax.

The storage service let customers upload, store, and retrieve their own data without access to the provider's servers or facilities. The compute service supplied scalable processing capacity, with either an open-source or third-party operating system running only on the provider's servers. Customers did not download or license that software or control physical equipment.

Customer-requested data-transfer fees made data or computing capacity available in another data center or region. Although the provider used communications services behind the scenes, it did not sell customers the transmission itself. All three charges were information services.

What this means for you

Cloud infrastructure providers

The ruling turned on remote capabilities without customer possession or licensing of hardware, software, or real property, and on customers buying their own Internet access.

Product and billing teams

Describe data-transfer fees as part of making stored data or compute capacity available, and preserve the architecture showing that customers do not buy the underlying telecommunications.

Common questions

Q: Did the operating system make virtual compute a software lease?
A: No. It ran only on the provider's servers and was not downloaded or licensed to the customer.

Q: Were data-transfer fees communications services?
A: No. They were incidental information-service charges under the described model.

Citations and references

• Fla. Stat. §§ 202.11(1) and (5), 212.031(1)(a), 212.05, and 213.22

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 14A19-001

Original ruling text

Executive Director

Marshall Stranburg

QUESTION: ARE TAXPAYER’S SALES OF SIMPLE STORAGE SERVICE (S3) SUBJECT
TO SALES TAX OR CST?
ANSWER: THE TAXPAYER’S SALES OF S3 SERVICE ARE SALES OF AN
INFORMATION SERVICE AND ARE NOT SUBJECT TO SALES TAX OR CST.
QUESTION: ARE TAXPAYER’S SALES OF ELASTIC CLOUD COMPUTE (EC2) SERVICE
WITH AN OPEN SOURCE INSTANCE OR A THIRD PARTY INSTANCE SUBJECT TO
SALES TAX OR CST?
ANSWER: THE EC2 SERVICE IS AN INFORMATION SERVICE. WHETHER SOLD
AS AN “OPEN SOURCE INSTANCE” OR A “THIRD PARTY INSTANCE,” THE
CHARGES ARE NOT SUBJECT TO SALES TAX OR CST.
QUESTION: THE DATA TRANSFER FEE IS CHARGED IN CONJUNCTION WITH
EITHER THE S3 OR THE EC2, OR BOTH. IS THE DATA TRANSFER FEE SUBJECT TO CST
OR SALES TAX?
ANSWER: THE DATA TRANSFER FEES CHARGED BY THE CUSTOMER ARE
INFORMATION SERVICES AND NOT SUBJECT TO SALES TAX OR CST.
March 13, 2014
RE:

Technical Assistance Advisement – TAA 14A19-001
Communications Services Tax and Sales and Use Tax
XXX (Taxpayer)
FEI #: XXX
Chapter 202 and 212, Florida Statutes

Dear XXX,
This is a response to your letter dated XXX. You have requested a Technical Assistance
Advisement (TAA) regarding the Department’s position on whether Florida Communications
Services Tax and gross receipts tax (CST) and/or Sales and Use Tax (sales tax) apply to the sales of
XXX Simple Storage Service (S3), Elastic Compute Cloud (EC2), or data transfer fees. The
information provided with your letter established that you meet the requirements for a TAA.
ISSUE

1. Are Taxpayer’s sales of S3 service subject to sales tax or CST?
   Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
   Property Tax Oversight – James McAdams, Director  Information Services – Damu Kuttikrishnan, Director
   www.myflorida.com/dor
   Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 2

2. Are Taxpayer’s sales of EC2 with an Open Source Instance service subject to sales tax or CST?
3. Are Taxpayer’s sales of EC2 with a Third Party Instance subject to sales tax or CST?
4. The data transfer fee is charged in conjunction with either the S3 or the EC2, or both. Is the data
   transfer fee subject to CST or sales tax?
   FACTS
   The Taxpayer offers “information technology infrastructure” services, such as computing
   power and storage capacity, to customers that need these services and capacity without the
   cost of the capital investment in equipment, staff, and other resources. The Taxpayer
   headquarters are located in XXX with additional offices in XXX and XXX. The Taxpayer
   utilizes data centers in XXX, XXX, XXX, and several countries outside the U.S. The
   Taxpayer also utilizes smaller data centers in many states and around the world as Points of
   Presence (PoP sites).
   Both the large data centers and the PoP sites are owned and operated by affiliated entities.
   Simple Storage Service (S3)
   The Taxpayer’s Simple Storage Service,
   … allows customers to store and retrieve content, data, applications, and
   software on its servers. [Taxpayer] essentially provides customers with remote
   access to computing infrastructure so that they can store and retrieve large
   amounts of data at any time and from any location via the [I]nternet. Customers
   do this by setting up an account via the [I]nternet which enables them to upload
   and store their own content on the [Taxpayer] network and later download that
   content.
   Companies and individual developers both use this service. Companies back up data or store
   large amounts of data for which they do not have memory capacity. Instead of investing in
   infrastructure, individual developers will use this service as a remote storage service.
   Customers retain all ownership of content and information stored on the Taxpayer’s network.
   The Taxpayer’s customers do not receive access to or possession of the tangible personal
   property, which includes both hardware and software that the Taxpayer uses to store the
   customer’s content.
   The customer may also purchase certain software development kits and management consoles
   made available by the Taxpayer. The software and consoles are made available free of charge.
   “The management console is a simple and intuitive web interface that allows user to create S3
   storage ‘buckets’ and then upload or delete objects in those buckets.” The tools simply aid the
   user in utilizing the Taxpayer’s service, but they are not required for the customer to purchase
   or use the Taxpayer’s service.

Technical Assistance Advisement
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Customers are not charged Internet access or any similar charge for use of the Internet to store
and retrieve information. Customers purchase their own Internet access (or
telecommunications services) from third party dealers.
Elastic Compute Cloud (EC2)
The Taxpayer’s Elastic Compute Cloud (EC2) service provides a “scalable virtual computing
environment.”
… Through EC2, customers can procure computing resources in order to
perform a variety of activities, including, but not limited to, running
applications, monitoring computers and computer usage, and hosting web
domains – essentially anything computer equipment, especially a computer
server, can do. The service’s core benefit is that it allows customers to obtain
remote access to computing capacity and control of their computing resources
without a significant information technology investment (e.g., customers no
longer have to buy their own servers or set up and maintain their own on
premises data centers). In the technology industry, the EC2 service is
commonly referred to as Infrastructure as a Service (IaaS).
In order to use EC2, customers request a configuration of memory, CPU,
storage and operating system. This configuration is called an “Instance” and is
the basis for the fee the customer is charged for EC2 usage.
A customer must have some basic operating system to direct the computing power it is
purchasing from the Taxpayer. Therefore, the Taxpayer provides its customers access to two
“types” of instances. The open source operating system software is used in an Open Source
Instance. This operating system is freely accessible to anyone over the Internet. Customers
may opt to use a third party operating system in a Third Party Instance. Either way, the
operating system runs only on servers within the Taxpayer network to provide the EC2
service. The customer does not download the software, does not have access to the software or
the physical remote location of the software, or have a license for the software. This is true for
both types of instances.
As with the S3 service, the Taxpayer makes available free tools for the EC2 service. These
tools are application programming interfaces and software development kits that help the
customer “more easily utilize the computing power.” Again, the tools are optional, free, and
not required to use the service.
For both services, customers are charged a base fee and an incidental fee in the form of Data
Transfer Fees. (Data Transfer Fees are discussed in more detail below.) For the S3 service, the
flat fee is determined by the amount of gigabytes (GB) used in the month. The EC2 service
flat fee is charged based on the amount of computing power used in a given month. Third
Party instances cost more than an Open Source instances.

Technical Assistance Advisement
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Data Transfer Fees
As mentioned earlier, the Taxpayer utilizes large data centers in three states with additional
centers outside the U.S. Customers must select one or more specific data center(s) to use the
Taxpayer’s services. Beyond that, a customer has no visibility as to exactly which server its
data is stored on and customers are not allowed physical access to the Taxpayer’s
infrastructure. The Taxpayer may, at its discretion and without customer notice, move
customer data from one server to another to provide the storage services purchased. However,
customers may decide to have data moved from one data center to another or to be made
available in one or more data centers. It is for this that customers incur the incidental Data
Transfer Fees.
Data Transfer Fees are “incidental” usage charges separately stated on customer’s bills from
the S3 or EC2 services. As mentioned earlier, often the Taxpayer makes decisions to move
customers’ stored data within a data center. Sometimes customers want their data to be
available in two (or more) data centers simultaneously; or the customer may wish to process
data using computing power provided by multiple data centers. When a customer requests this
type of service, the Taxpayer charges “Data Transfer” fees to make the data or the computing
power accessible to the customer in the data center or region in which the customer has
requested it.
According to the Taxpayer’s letter,
These fees act as a metering mechanism that tracks a customer’s usage of the
AWS services and network and are not fees for the underlying
telecommunications infrastructure…
The Data Transfer Fees are charged only in relation to the S3 or EC2 services and are “… a
consequence of a customer’s active use of a different and primary service such as the EC2
service.” The charge may be incurred for the customer requesting that files be moved between
data centers or “backed up” at a second data center or for the retrieval of certain stored data
back to an origin server.
TAXPAYER POSITION
The Taxpayer believes its sales of the S3 and EC2 services and the data transfer fees constitute
information services not subject to CST or sales tax.
LAW AND DISCUSSION
Section 202.11(1), F.S., provides the following definition of communications services:
“Communications services” means the transmission, conveyance, or routing of
voice, data, audio, video, or any other information or signals, including video
services, to a point, or between or among points, by or through any electronic,

Technical Assistance Advisement
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radio, satellite, cable, optical, microwave, or other medium or method now in
existence or hereafter devised, regardless of the protocol used for such
transmission or conveyance. The term includes such transmission, conveyance, or
routing in which computer processing applications are used to act on the form,
code, or protocol of the content for purposes of transmission, conveyance, or
routing without regard to whether such service is referred to as voice-overInternet-protocol services or is classified by the Federal Communications
Commission as enhanced or value-added. The term does not include:
(a) Information services.

Section 202.11(5), F.S., provides the following definition for information services:
“Information service” means the offering of a capability for generating, acquiring,
storing, transforming, processing, retrieving, using, or making available information
via communications services, including, but not limited to, electronic publishing,
web-hosting service, and end-user 900 number service. The term does not include
video service.
Section 212.031(1)(a), F.S., provides that the lease of real property is a taxable transaction,
stating in part:
It is declared to be the legislative intent that every person is exercising a taxable
privilege who engages in the business of renting, leasing, letting, or granting a
license for the use of any real property….
Section 212.05, F.S., provides, in part, the following regarding the sale of tangible personal
property:
It is hereby declared to be the legislative intent that every person is exercising a
taxable privilege who engages in the business of selling tangible personal
property at retail in this state, including the business of making mail order sales,
or who rents or furnishes any of the things or services taxable under this chapter,
or who stores for use or consumption in this state any item or article of tangible
personal property as defined herein and who leases or rents such property within
the state.
(1) For the exercise of such privilege, a tax is levied on each taxable transaction
or incident…. (Emphasis added.)

In general, CST applies to the retail sale of communications services. Communications services
are broadly defined in Florida statute as the “… transmission, conveyance, or routing of voice,
data, audio, video, or any other information or signals, including video services, to a point, or

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between or among points, by or through any electronic, radio, satellite, cable, optical,
microwave, or other medium or method now in existence or hereafter devised, regardless of the
protocol used for such transmission or conveyance.… The term does not include:
(a) Information services.” (See s. 202.11(1), F.S.)
Information services are defined in Florida statute as “… the offering of a capability for
generating, acquiring, storing, transforming, processing, retrieving, using, or making available
information via communications services, including, but not limited to, electronic publishing,
web-hosting service, and end-user 900 number service. The term does not include video service.”
(See s. 202.11(5), F.S.)
Simple Storage Service Base Fee (S3)
As described, this service allows the customer to utilize the storage capacity within the
Taxpayer’s server/computer equipment. However, the Taxpayer does not actually provide access
or license to use that equipment or the real property facilities where the servers are located.
Customers, in fact, have no knowledge of what “server space” actually stores the information
outside of the geographic location where the data center(s) is located. Customers upload and
download their own data via their own Internet connection. As such, this service is not a
communications service. Customers are not charged Internet access or any similar charge of use
of the Internet. Customers are not being sold the ability to “transmit, convey, or route …” data.
Customers purchase Internet access and telecommunication services from third parties. As this
service is the “… offering of a capability for … storing, … retrieving, using, or making available
information via [a communications service]…,” it is properly classified as an information
service. Information services are excluded from CST.
The customer is not purchasing or being granted a license to use tangible personal property or
real property. Therefore, the service is also not a sale subject to sales tax.
Elastic Compute Cloud Service Base Fee (EC2)
The Taxpayer describes in its letter that:
. . . The service’s core benefit is that it allows customers to obtain remote
access to computing capacity and control of their computing resources without
a significant information technology investment (e.g., customers no longer have
to buy their own servers or set up and maintain their own on premises data
centers). . . .
EC2 is referred to as “Infrastructure as a Service.” To utilize this service, Taxpayer customers
must also have an operating system. Therefore, the Taxpayer provides the operating system. The
operating system is only used by the customer when using the EC2 service. It is not downloaded,
leased, or kept by the customer. It operates only on the Taxpayer’s servers. The customer has no
access to the physical location or server equipment. Customers are not charged Internet access or

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any similar charge for use of the Internet. Customers are not being sold the ability to “transmit,
convey, or route …” data. Customers purchase Internet access and telecommunication services
from third parties.
As this service is the “offering of a capability for generating, acquiring, storing, transforming,
processing, retrieving, using, or making available information via communications services…,”
it is also properly classified as an information service. The service is an information service
whether the customer chooses an Open Source or Third Party Instance. As an information
service, it is not subject to CST.
Because there is no sale or lease of software, tangible personal property, or real property, the
service is not subject to sales tax.
Data Transfer Incidental Charges
As explained above in the FACTS, customers may want and request that data be available in
two (or more) data centers simultaneously; or the customer may wish to process data using
computing power provided by multiple data centers. When a customer requests that data be
made available at a different data center or at multiple data centers, the Taxpayer charges
“Data Transfer” fees for providing this service. While the Taxpayer may utilize
communications services to move the data from or between data centers, the charge is not the
Taxpayer providing the communications service to the customer. This is because the customer
is not being sold the ability to “transmit, convey, or route …” data. The charge is for the
Taxpayer to make the data or the computing power available, accessible, in the data center or
region in which the customer has requested it.
While the Taxpayer explains that this charge is only incurred as part of either the S3 or EC2
service, either way, the charge is an information service not subject to sales tax or CST.
CONCLUSION
The Taxpayer’s sales of S3 service are sales of an information service and are not subject to sales
tax or CST.
The EC2 service is also an information service. Whether sold as an “Open Source Instance” or a
“Third Party Instance,” the charges are not subject to sales tax or CST.
The Data Transfer fees charged by the customer are information services and not subject to sales
tax or CST.
This response constitutes a Technical Assistance Advisement under s. 213.22, F.S., which is
binding on the Department only under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is predicated on those facts and the

Technical Assistance Advisement
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specific situation summarized above. You are advised that subsequent statutory or administrative
rule changes, or judicial interpretations of the statutes or rules, upon which this advice is based,
may subject similar future transactions to a different treatment than expressed in this response.
You are further advised that this response, your request and related backup documents are public
records under Chapter 119, F.S., and are subject to disclosure to the public under the conditions
of s. 213.22, F.S. Confidential information must be deleted before public disclosure. In an effort
to protect confidentiality, we request you provide the undersigned with an edited copy of your
request for Technical Assistance Advisement, the backup material and this response, deleting
names, addresses and any other details which might lead to identification of the taxpayer. Your
response should be received by the Department within 15 days of the date of this letter.
Should you have any questions, please feel free to contact me.
Sincerely,

Carla M. Bruce
Tax Law Specialist
Technical Assistance and Dispute Resolution
(850) 717-6315
Record ID: 153404