State tax policies need to be updated to better address new business models such as cloud computing, as well as a change that began long ago—the nation’s shift toward a service-based economy, according to the just-published Bloomberg BNA’s 14th annual Survey of State Tax Departments.

Both of these trends have highlighted the types of transactions that can be subject to a state’s tax. As the role of geographical boundaries continues to diminish as a factor in modern commerce, uncertainties appear to be multiplying for both states and businesses over basic issues such as which states are allowed to impose their corporate income tax on sales of services, intangibles or cloud-based transactions.

The lack of uniformity in this area raises the likelihood that taxpayers will face unexpected results, according to the survey. In some cases, two or more states may end up taxing the same transaction, while in other cases the transaction may escape taxation by any state altogether.

Moreover, for many states it remains unclear how cloud-based transactions are characterized and taxed, even as the use of such services is growing in popularity, the survey indicated.

“It is clear from the results of this year’s survey that states are still trying to catch up to the digital economy of the 21st century, at least as it relates to their tax codes,” said George Farrah, executive editor of Bloomberg BNA’s Tax & Accounting division. “Moreover, the situation creates a great deal of uncertainty for corporations that cannot properly plan for the state tax impact of the cross-border services they provide.”

Bloomberg BNA’s Survey of State Tax Departments aims to clarify each state’s position on the gray areas of corporate income tax, sales and use tax and on nexus policies. This year’s survey included new portions to address sales tax nexus for cloud computing and services.

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