While it's not a clean and simple answer, the short answer is yes, you can deduct your web hosting fees from your taxes, along with other things that normally accompany running an online business. There are several key points to consider in the law of several states. In Texas, 80% of the charge for web hosting services is taxable such as data processing. In Connecticut, web hosting is also subject to taxes such as data processing.
However, data processing services are only taxed at a 1% rate. In Ohio, web hosting is only taxable if it is sold for use in a business. Tax charges are listed on the bill. Taxes apply to taxable products and services under the tax laws of the customer's billing address.
Taxes collected are paid to the taxing entity in accordance with local requirements. Fortunately, you can get relief by deducting items such as your web hosting server, domain, and various programs. But, once again, the rules related to co-location facilities show that a backend installation used to host web-based software products may be entitled to preferential tax treatment over sales. First, Internet data center operators generally do not pay sales tax for the purchase or use of machinery, equipment, and other tangible personal property (including software) and services used in the data center for website hosting.
Today, web hosting companies like GoDaddy and HostGator have expanded their services beyond domain names and hosting. However, while there may be a component of renting server space, most states have come to the conclusion that web hosting is a service. This is achieved by web hosting companies by providing customers with hardware (servers and data storage) and Internet connectivity. Other states, such as Kansas and Massachusetts, will tax web hosting, even if stated separately, if it is required or contractually required as part of a software sale.
Both backend businesses can benefit from the state's unique sales tax rules for hosting facilities. But similar to the general public's limited understanding of the complicated back-end operation of the Internet, many tax professionals (and taxpayers) may not appreciate the unique and potentially favorable sales tax rules that apply to the service providers they support specifically to providers of web-based software, Internet data centers, and co-location facilities that house the servers used to host many software products. For resellers, if your customer pays you for web hosting, you can't claim it unfortunately because your customer covers this cost when paying you for the server. For New York State tax purposes, an operator of an “Internet data center” is any person who operates a facility specifically designed and built to securely maintain servers and similar equipment that are used to continuously host Internet websites.
Since A2 Hosting does not ship tangible goods, it is assumed that all products and services are received in the jurisdiction of the customer's billing address. Traditionally, web hosting services allow a company to make its website accessible to the Internet or the World Wide Web. For many of the states that exempt web hosting, it's important to separate other taxable elements from web hosting charges.
