Arizona – Taxpayer Ruling Computing Capacity Services Taxable While Data Storage Services Non-Taxable

SALT Report 3179 – The Arizona Department of Revenue issued a private taxpayer ruling (see AZ LR13-006) regarding the taxability of a Taxpayer’s two sources of income; one being Computing Capacity Services (Business Offering One – considered Taxable) and the other being a Data Storage Service (Business Offering Two – considered Non-Taxable).  Within the ruling, the Arizona Department of Revenue clarified the distinction between the two sources of income and how it relates to Arizona’s Transaction Privilege Tax (TPT) in the context of what it means “to rent”.

“The business activities of Company in Business Offering Two (Data Storage Services) do not meet the criteria under A.R.S. §42-5071 for the renting of tangible personal property.  Business Offering Two provides storage capacity only and does not involve the right to control or possess software or other tangible personal property.  Moreover, Business Offering Two is not subject to tax under the remaining TPT classifications.”

Keep in mind that the Letter Ruling stresses the importance of demonstrating that the two Business Offerings exist as separate lines of business in order to be considered individually.  The Letter Ruling cautions the lump sum taxpayer about blurring the business lines of renting TPP versus providing a service.  In this case it appears the lines were distinct enough to separate the LOB’s.

For Further Information:

AZ DOR:  LR13-006 Lease of Tangible Personal Property