Idaho – Cloud Software Exempt from Sales Tax

SALT Report 2343 – The Idaho State Legislature passed a bill that amends existing law to provide an exemption from sales tax for cloud software and “cloud computing” services delivered over the Internet effective April 3, 2013. Additionally, House Bill 243 amends the definition of “tangible personal property” to provide that TPP includes “any computer software that is not a custom computer program and is not application software accessed over the internet or through wireless media.”

However, the exemption does not apply if the vendor of the computer software offers the software for sale electronically, by download to the user’s computer or server, and also sells the same or similar software through wholesale or retail channels. Additionally, the exemption also excludes remotely accessed software used primarily for entertainment purposes.

The Bill is co-sponsored by Idaho businesses that were recently audited due to a decision by the Idaho State Tax Commission that made all subscription software delivered online subject to sales tax. The ruling and subsequent audits prompted these high-tech firms to threaten to move their businesses and their servers to Oregon which has no sales tax. Idaho Legislatures responded with House Bill 243.

When the Governor signed the Bill into law he stated that the sales tax exemption was designed to keep the technology businesses currently in the state as well as to attract new cloud computing businesses to expand the state’s growing technology sector.

While several states currently have software legislation pending, the decision in Idaho is in direct contrast to what is happening in those states. For example, Massachusetts is considering a measure that proposes to impose sales tax on cloud services. Specifically noted in the draft rules is that software would be taxable “regardless of the method of delivery.”

Likewise, Arizona, Indiana, New York, Texas and Washington have recently adopted various rules regarding the application of sales tax to cloud services; and Kansas, Rhode Island, Tennessee, Virginia, Wisconsin and Nebraska have decided that cloud services would remain exempt from sales tax so long as the buyer doesn’t download software.

For Further Information

Idaho State Legislature – House Bill 243