Sales Tax on Colocation, Hosting and GPU Cloud Services

Are cloud services taxable in Texas?

Texas treats cloud hosting, storage, backups and GPU compute as data processing, taxing 80% of the charge. Separately billed colocation space and power are untaxed to the tenant; the operator pays tax on purchased electricity.

The data-processing exemption covers 20% of the charge. Computer time counts even when the customer performs the processing; computer ownership alone does not decide taxability. Hardware repair and telecommunications do not receive this exemption (Rule 3.330; taxable services).

Is infrastructure as a service (IaaS) taxable in New York?

New York ruled hourly computing capacity a nontaxable service in TSB-A-15(2)S. Customers ran their own applications, had no physical access and were not assigned specific machines; operating-system access was incidental.

New York ruled electronic storage in TSB-A-16(19)S nontaxable. Each opinion binds only its requester on the stated facts. IaaS or platform as a service (PaaS) labels alone do not establish the result.

Is cloud storage or web hosting taxable in Washington State after ESSB 5814?

Mere digital storage, hosting and backup remain excluded from digital automated services: service business and occupation (B&O) tax applies, without retail sales tax. IT services became retail sales on October 1, 2025 (storage guidance; IT interim guidance).

IT services generally subject to retail sales tax include managed networks, troubleshooting and data processing; web hosting is excluded. Washington's data-processing definition concerns the provider processing customer data, unlike Texas's broader computer-time rule. Extra application functions can take a service beyond mere storage (DAS interim guidance). These sources do not settle GPU-hours or a complete colocation bill; a DOR ruling can clarify a contract.

Sales of IT and data-processing services between members of a qualifying affiliated group are excluded from retail sales tax; service B&O generally still applies (IT guidance).

From July 1, 2026, qualifying K-12 schools and public-library entities can buy IT services exempt with the required certificate (notice). Pending litigation does not suspend DOR's collection instructions (current guidance). Temporary penalty relief covers reporting periods from October 1, 2025 through December 31, 2026. Apply online by September 30, 2027 and pay tax and interest; tax is not forgiven.

Are cloud services taxable in California under the new digital-product rules?

California generally does not tax remote computer capacity. Physical operation or control at its premises can create an equipment lease (Regulation 1502(c)(7), (i)).

From January 1, 2027, the new digital-product rules generally reach prewritten software, including SaaS. Digital infrastructure is excluded: qualifying IaaS and PaaS let customers create, deploy or run their own software (definitions; L-1036).

Is colocation taxable, line by line?

Classify space, power, connections and support separately. Texas and New York agency answers are not nationwide rules.

Assume separately priced services: customer-owned equipment in the first four rows, operator-owned servers for compute. Texas space, power and support follow a nonbinding letter. “Review” means unresolved.

Submetered power measures customer electricity use accurately. Dark fiber is passive; lit fiber adds transmission. Intrastate connections join points within one state (New York opinion).

Texas's colocation letter distinguishes installing customer-owned gear from selling that gear. The cross-connect ruling covers permanently annexed fiber where the operator does not transmit data; patch cables and wireless connections are outside it. Separately stated internet access is exempt, but transport needs its own classification (current Texas guidance).

California exempts electricity delivered to consumers through lines (Section 6353) and distinguishes equipment maintenance from property sales (Regulation 1502(g)).

Does renting a bare-metal or dedicated GPU server change the answer?

Review dedicated-server contracts: exclusive compute capacity differs from hardware possession. New York covered dedicated instances without assigned machines or physical access, leaving physical rentals unresolved. Texas taxes data processing regardless of computer ownership (New York opinion; Texas rule).

Record ownership, physical control, supplied software and the purchased service.

Does switching from bitcoin mining to HPC hosting change sales tax?

Tax follows the service, not the site's former use. Texas ruled hosting customer-owned mining machines nontaxable where customers controlled them remotely and the operator could not access their data or internal processing; repairs remained taxable (machine-hosting ruling).

Selling GPU-hours on the operator's servers instead involves data processing. The mining ruling did not decide GPU hosting. Texas private rulings protect only the identified requester and facts, while general information letters are not binding (ruling limits).

Should we bill one bundled price or split each line?

Distinct services billed separately at reasonable prices may retain different tax treatment. Invoice labels cannot turn a computing service's own power costs into an exempt colocation sale.

For data processing bundled with distinct nontaxable related services, such as consulting, design or training, Texas presumes the whole charge taxable when the taxable portion exceeds 5.0% of the total. Reasonable separate charges or later supported allocation can overcome that presumption. This is not a general exemption for colocation or hardware repair. Provider costs stay in the taxable service's base (Rule 3.330(e)).

New York's colocation opinion taxes a mixed single price; separate reasonable charges work when taxable services can be bought separately. Washington generally taxes mixed bundles unless an exception applies (New York; Washington).

Do we charge Texas tax when customers or users are outside Texas or in Canada?

Texas exempts data processing performed in Texas for use entirely outside Texas; partial outside use is exempt to that extent. Delivery in Texas is presumed Texas use until shown otherwise (Rule 3.330(g)).

Keep business locations, benefiting users, contracts and supported allocations. A Canadian billing address alone does not prove outside use. A valid multistate-use certificate shifts Texas reporting to the customer. If Texas tax is uncollected or undercollected, the customer pays use tax on its Texas share (Rule 3.330(i)).

Merely using qualifying internet hosting does not establish Texas nexus under Section 151.108(b); other activities need review (Tax Code). See when you must collect sales tax for registration thresholds.

Can a hosting reseller buy capacity tax-free for resale?

A reseller may qualify when it resells purchased capacity as hosting, rather than consuming it to run its own product. Texas approved resale for a website host, but denied it for a logistics software operator on that operator's documentation.

The purchaser signs and gives the resale side of Form 01-339 to the supplier at purchase. Normally include a Texas permit number; a pending-application certificate lasts 60 days before renewal with the permanent number. Out-of-state retailers can use their home-state registration or statement that no permit is required there (Rule 3.285(d), (g)). The exemption side needs no number. Resale must qualify within the US or Mexico; separately test outside-Texas use for Canada (Tax Code). Consuming capacity bought for resale can trigger tax under Section 151.154.

Do we pay sales tax on electricity bought to run the site?

Texas's colocation letter treats the operator as the electricity consumer. The qualifying data-center exemption requires a single occupant that does not sublease; multi-tenant colocation generally fails that test. The ordinary exemption covers state tax only; qualifying large projects can also receive local relief (Texas exemption).

New York's opinion allows a refund or credit for accurately measured power resold, but no resale certificate when the operator also consumes power. Other equipment purchases belong in servers, installation and maintenance.

Cloud customer identification rules, export controls, customs, CFIUS and sales tax audit representation are outside this page.

Example

These illustrative US-dollar examples assume the stated contract conditions. Apply state and local rates to the taxable bases.

Dallas colocation data center

A tenant's month includes space $20,000, power $30,000, permanently annexed passive fiber $2,000, reboots and rack-and-stack $1,000, and hardware repair $500. Under the Texas letter and fiber ruling's conditions, only $500 is taxable.

For a New York comparison, assume the support charge is solely exempt rebooting: submetered power adds $30,000, making $30,500 taxable. Rack-and-stack needs separate installation analysis. One mixed price makes the whole $53,500 taxable under the opinion.

Former West Texas mining site

Customer-owned GPU servers incur $40,000 of power-based hosting and a separate $2,000 repair. The mining ruling supports examining the hosting separately, but does not establish an exemption for this GPU contract; repair is taxable.

Selling $100,000 of the operator's GPU-hours for Texas use produces an $80,000 taxable base. New York supports nontaxable treatment only on the hourly-capacity opinion's facts. Washington GPU-hours need classification under current guidance.

Delaware hosting reseller with a Canadian customer

A reseller buys $50,000 of Texas hosting and resells it for $60,000. Documented Canada-only use requires separate outside-Texas-use analysis for both transactions. The purchaser can give the supplier the exemption side of Form 01-339, stating its reason and retaining use records. Neither the resale side nor a Canadian billing address automatically establishes exemption.

If 10% of the customer's benefit is at its Houston office, the Texas-use charge is $6,000. The taxable base is 80% of $6,000, or $4,800. If the reseller need not collect, the customer reports use tax. The $50,000 purchase still needs its own exemption basis and records.

Different for you?

• Software or a model API accompanies compute, or software users span states: see software and digital services.
• A Canadian or other foreign seller needs US permits: see foreign sellers and sales tax.
• Return schedules, zero returns or permit closure: see filing sales tax returns.
• Tax was not collected: see catching up on uncollected sales tax.
• Collected Texas tax was not remitted: responsible officers, managers, directors, employees or partners controlling it can owe it personally for willful nonpayment, even after dissolution. Assessment generally expires 4 years after tax is due; unfiled or fraudulent reports or corrected tax at least 25% above reported tax remove that limit. Nonfinal liability, statutory tolling or bankruptcy can stay personal assessment until the first anniversary of final liability or bankruptcy closure or dismissal (Sections 111.016, 111.201, 111.205).
• Machines are hosted in Canada: see Canadian hosting and GST/HST; a US seller's Canadian registration belongs in non-resident and digital sellers.
• Servers create income or franchise tax questions: see other-state business taxes and Texas franchise tax.
• Mixed contracts or missing records: prepare contracts, invoices, meter readings, connection diagrams, ownership records and use allocations.