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Idaho Clarifies Exempt Status of Cloud Computing Services

  • May 2, 2014 | Gail Cole

 Idaho: while tangible goods like ebooks are subject to sales tax in Idaho, cloud computing services are not.

In the spring of 2013, Idaho Governor Butch Otter (R) signed legislation that exempted cloud computing services from Idaho state sales tax. Yet House Bill 243 left certain things open to interpretation and according to the Idaho legislature, “problems were encountered in the rule-making process that made further legislation necessary.” As a result, the exempt status of “software that is delivered electronically” has now been clarified with the enactment of House Bill 598. It takes effect July 1, 2014.

The new legislation excludes from Idaho sales and use tax “subscriptions, licenses or similar arrangements for the use of computer software… unless some tangible form of the software is delivered to the user. This includes remotely accessed computer software, commonly known as software offered over the ‘cloud.’”

The Idaho Technology Council (ITC) is strongly opposed to taxing cloud computing services or Software as a Service (SaaS). According to Jay Larsen of ITC, “One of the key challenges [of HB 243] was a phrase in the existing tax code that referred to ‘load and leave.’ According to this phrase, anytime someone downloaded something and then left it on their computer—that was a ‘taxable event.’” The new legislation directly references software delivered by the load and leave method.

HB 598 exempts from sales and use tax:

  • Computer software that is delivered electronically;
  • Remotely accessed computer software; and
  • Computer software that is delivered by the load and leave method where the vendor or its agent loads the software at the user’s location but does not transfer any tangible personal property containing the software to the user.

Under the new law, tangible personal property remains subject to sales tax. This includes “computer software that constitutes digital music, digital books, digital videos, and digital games, regardless of the method by which the title, possession or right to use such software is transferred to the user.”

Those opposed to exempting cloud computing services worry about the impact on state revenue. According to the new legislation's Statement of Purpose, the fiscal impact of HB 598--estimated at “$2 million to $5 million annually—“is not expected to be significant.”

One of the challenges faced by providers of Software as a Service and other cloud computing services is the fact that different states tax their services differently. Learn how an automated sales tax solution can help.

photo credit: Pen Waggener via photopin cc

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.