Proposed IRS rules on how tech companies should characterize their cloud computing transactions could subject them to wildly different tax rates—from as high as 30% to little or no tax at all.

The tax rate would depend on how the Internal Revenue Service, in forthcoming proposed rules, characterizes cloud computing transactions—those that allow buyers to use a network of remote servers hosted on the internet to store, manage, and process data. These transactions could be taxed as either licenses, which would be subject to high withholding taxes, or services, which would be subject to lower or negligible amounts.

Cloud computing...