Arizona DOR’s Draft Ruling for Comment Addresses Taxability of Rented Servers and Web Hosting

Transaction Privilege Tax Ruling TPR 21-2, Ariz. Dept. of Rev. (11/21); Draft Documents for Public Comment, Ariz. Dept. of Rev. (11/21). The Arizona Department of Revenue has posted for public comment a draft Arizona transaction privilege tax ruling addressing whether providing remotely accessed web hosting and servers is taxable as a rental of tangible personal property under Arizona Revised Statutes § 42‐5071 and Model City Tax Code § ‐450. Among its conclusions, the draft ruling provides that assuming a taxpayer has nexus under Wayfair, a server rental (including dedicated servers, virtual private servers and dedicated virtual or physical servers) generally is considered taxable under the personal property rental classification when:

• The server is intended to be used by an “Arizona located lessee”;
• The lessee is provided exclusive use and control of the server, or server features, for a fixed payment;
• The agreement, if not renewed, terminates at either a specific time (e.g., subscription agreements) or upon a specific event (e.g., termination notice or nonpayment); and
• After termination the lessee no longer has access to the server.

Source Deloitte

---

---