Hey (Hey), You (You), Stop Taxing My Cloud

Jim McGeever, the chief operating officer of NetSuite, thought his financial management software company was going out of its way to collect the right amount of sales tax from customers who purchase its products online. If anything, he says, he was too careful. The San Mateo (Calif.)-based firm paid tax consultants $50,000 to make sure it was following the law and wound up taxing customers for Internet sales in states where its competitors didn’t, even though that put the company at a competitive disadvantage.

Texas wasn’t impressed. Officials called to complain that NetSuite had failed to collect on sales in the state. The resulting dispute and settlement with the state illustrate the growing clash between a tax system built to handle real-world exchanges of tangible goods and an Internet marketplace that exists everywhere and nowhere and whose products take the form of invisible ones and zeroes. “It is an enormous burden on businesses trying to figure this all out,” McGeever says.