Rackspace has done extensive research into our travel, channel relationships and sales activities. Due to a gradual change in our activities and overall operations, we have created a sufficient taxable presence, or nexus, in several jurisdictions where we historically have not had a presence.
In general, nexus is the minimal amount of contact with a state that creates a taxable presence. Each state has its own unique rules and the threshold can vary state to state. Examples of nexus creating activities are: physical locations such as offices and datacenters, employees, contractors or agents (including channel partners) within the state, travel to the state and sales activity, commonly known as “economic nexus” or “Amazon laws”.
Our services are subject to sales tax only in certain jurisdictions as prescribed under local statute. Each state’s Department of Taxation, Department of Revenue or similar government entity has categorized web hosting services as a taxable service and require Rackspace to collect sales tax on these services. If consumers are not charged sales tax on taxable items, such as hosting services, they are obligated to remit “use” tax for these services under local statute.
Due to changes in our activities (see #1 above), Rackspace now has nexus in almost all 50 states and District of Columbia. Some of these states have determined that Web Hosting Services is a taxable service and therefore require sales and use tax to be paid. Since you are located in one of these states you should have been remitting Use Tax directly to the state for these services since we historically did not charge sales tax. Now, Rackspace will be collecting these taxes for you and paying them on to the state. For clarity, Rackspace has not increased its price and does not receive any benefit from the application of sales tax, rather it serves as an intermediary to collect the applicable tax and pay directly to the state. This should not change the economics for the customer as should have already been remitting use tax. These customers will not have to remit use tax prospectively.
Rackspace accepts valid exemption certificates, resale certificates and direct pay permits. If you are exempt for one of these reasons please forward the proper documentation to your account manager or your AR Representative.
Contact your account manage or AR rep and provide a valid exemption certificate, resale certificate or direct pay permit. A credit memo will be issued and your tax status will be updated.
You will no longer need to self-accrue and remit Use Tax for these purchases. Rackspace will now be collecting sales tax and remitting to the state.
Within the laws in each state, the taxability of products and services is enumerated. There are publications that summarize the state tax laws available through various vendors that provide tax research materials. States also have websites that provide access to the laws and regulations in their state.
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