Does Utah sales tax apply to charges for leasing space on remote Internet servers to customers?

Plain-English summary

An owner of a new (1996-era) Internet service company asked the Utah State Tax Commission whether reselling leased space on remote Internet servers to clients — essentially early web hosting — was subject to Utah sales tax, since he'd heard conflicting reports.

The Commission answered clearly: under Utah law as it stood in 1996, charges for access to online services such as the Internet are not subject to sales tax. Based on the facts described, the company's server-space reselling charges were tax exempt. The one carve-out flagged: if the company also sold or rented computer equipment or "canned" (prewritten) software, those separate transactions would be taxable.

The Commission also gave a heads-up that the state legislature had hired a consultant to review the entire telecommunications field, with a report expected before the 1997 legislative session — signaling that this tax-exempt treatment of online services could change with future legislation.

What this means for you

Internet/web hosting businesses (as of 1996)

Pure access/hosting charges were not taxable under Utah law at the time of this ruling. If your revenue is genuinely just for server space or online access, this ruling supports treating those charges as exempt for that era — but see the caveat below about later legislative change.

Businesses that bundle hosting with equipment or software sales

Watch the line between exempt service charges and taxable product sales. If you also sell/rent computer hardware or prewritten ("canned") software to the same customers, those specific charges are taxable even though your hosting/access charges are not — keep them separately stated.

Accountants and tax professionals — historical context caveat

This ruling reflects 1996 law only, before Utah's later legislative telecommunications review (flagged in the ruling itself as pending for the 1997 session) and decades before modern digital-products and remote-access sourcing rules were enacted. Don't rely on this ruling for current Utah tax treatment of hosting, cloud services, or SaaS — confirm today's statute and any relevant PLRs before advising a client.

Common questions

Q: Were web hosting / Internet access charges taxable in Utah in 1996?
A: No. The Commission found that charges for access to online services, including reselling leased remote server space, were not subject to sales tax under Utah law as it existed at that time.

Q: What if I also sell computer equipment or software along with hosting?
A: Those transactions are taxable on their own, even if your hosting/access charges are exempt. Keep them as separately identifiable transactions.

Q: Does this ruling reflect current Utah tax law on hosting or cloud services?
A: No — this is a 1996 ruling, and the Commission itself noted a pending legislative telecommunications review that could change this treatment. Modern digital-products and software-as-a-service tax rules in Utah have evolved substantially since 1996; consult current law or a tax professional.

Citations and references

No specific statutes or rules were cited in this ruling; the Commission's answer rested on its general 1996-era position that Internet access charges were not taxable sales.

Source

• Landing page: https://tax.utah.gov/commission/rulings/
• Original page: https://files.tax.utah.gov/tax/commission/ruling/96-106.htm

Original ruling text

96-106

Response
July 16, 1996

Request

Office
of Commissioners

210
North 1950 West

Salt
Lake City, Utah 84134

Re:
Advisory Opinion

Dear
Sirs or Madams:

I
am an owner in a new Internet service company, XXXXX. We are resellers of
virtual servers, in other words, we lease space on remote Internet servers to
our clients and customers. Is this activity subject to state sales tax? I have
heard reports either way and need some clarification on this matter. Please
write me at the address above with your opinion. Thank you.

Sincerely,

XXXXX

XXXXX

Re:
Advisory Opinion - Sales Tax for Internet Services

Dear XXXXX

We received
your request for an advisory opinion whether Utah law requires that you collect
sales tax for space you lease on remote Internet servers to your clients. Under current Utah law, charges for access
to on-line services such as the Internet are not subject to sales tax. If XXXXX engages in the sale or rental of
computer equipment or �canned software,� those transactions are taxable.

From
the information provided in your letter, it appears that charges to your
customers are tax exempt under current Utah law. However, the legislature has hired a consultant to review the
entire telecommunications field and advise it on possible changes in the
future. The study should be completed
before the 1997 legislative session, so you may expect news on these issues
sometime after the session.

Please
let us know if we can be of further assistance.

For
the Commission,

Alice
Shearer,

Commissioner