Amazon Web Services, the cloud computing unit of the Seattle online retailer, notified customers in Washington state this week that it plans to begin collecting sales tax on the online services if offers next month.

“We wanted to let you know that starting with your March 2012 bill (sent out at the beginning of April), AWS will begin collecting Washington State sales tax for accounts with a billing address in the state of Washington,” the company wrote in a message to customers. “We are doing this in order to comply with changes to state law, which requires us to remit this tax to the State.” has been locked in an ongoing battle with many states over the collection of sales tax as it relates to the sale of physical goods. The company has argued that it should not have to collect sales tax because it does not operate brick-and-mortar operations in those states, and it has lobbied for a federal policy on sales tax collection.

In Washington state, where is headquartered, it has always collected sales tax when customers buy a book, . But the move to collect the tax on online services like S3, EC2 and Dynamo DB could signal a new move.

We’ve reached out to both and the Washington State Department of Revenue for comment, and we’ll update the post as we hear more.

Tatango CEO Derek Johnson, an Amazon Web Services customer, received the notification Thursday. He said the tax increases will have little impact on his Seattle text messaging marketing startup since the company’s server needs are fairly minimal.

“Governments are always looking for additional sources of revenue and this is just another way to tap into sales tax revenue that isn’t being collected,” noted Johnson. “If I was managing Washington state, I’d be going after the additional revenue as well.”

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  • Guest

    *Logs into AWS and changes his address* *protip

  • Stephen Milton

    According to this page on Amazon they felt that AWS was not subject to Washington Sales Tax.

    US Sales Tax
    All Amazon Web Services are sold by Amazon Web Services LLC. Amazon Web Services LLC is required to collect taxes on taxable services in the State of Washington. However, Amazon Web Services are not currently considered taxable services in the State of Washington, and are, therefore, not subject to tax.

    I haven’t been able to find anything on the ruling from the state DOR that changes these services into a taxable category.

  • Lew McMurran

    This is due to the sales tax applied to “digital goods” and “digital automated services” that became law a couple years ago.  The law treats certain types of digital products the same as equivalent tangible products. 
    There are both upsides and downsides.  Downside is that WA state customers of these products now pay sales tax when they did not previously and sellers of digital products have to become tax collectors for the state. 

    Upside for the seller is they now have a lower B&O rate going from the “service” rate of 1.8% to the “retailer” rate of 0.471%.  The other upside is that it broadens the tax base to keep up with technology and e-commerce.

    • johnhcook

      Thanks for the additional info Lew. Here’s more from the Department of Revenue:

      “The Legislature in 2009 adopted digital products legislation to update our tax laws to deal with the emergence of new technologies and ways of doing business.  This legislation among other things applies retail sales tax to the sale of certain cloud computing services such as computing power and remotely accessed software.  Any provider who must charge retail sales tax on such a service pays a lower 0.471% B&O tax rate instead of the current 1.8% rate that applies to services that aren’t subject to retail sales tax.  See the link below for how the law applies to what is called digital automated services (DAS). “

  • ivanoats

    Why is amazon charging sales tax if there is a specific exemption for web hosting, storage and backup?

    • David

      You are right. They say they specifically exclude web storage and backup, and S3 is just that, so it should not be subject to the tax.

  • Tom G

    Geez the rules are so confusing. I can’t even tell if I use software like echosign in my business, do I have to pay a use tax (it seems like it is a digital automated service and probably isn’t considered a “data processing service”, but who really knows?!?) since they don’t collect it but I’m still buying it. Heck, now that they are part of Adobe, maybe they even have nexus in WA for all I know.

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