Last year Idaho’s House of Representatives enacted HB 243, exempting cloud computing services from Idaho’s sales tax. However, the legislation led to more questions and uncertainty. Thus, Idaho’s House of Representatives introduced HB 598 to provide clarity to HB 243. However, based on the governmental entities’ comments and legislation many issues remain unsettled.
Under Idaho’s current regulations, all tangible personal property is subject to sales tax. Tangible personal property includes software that is not customized and is not application software accessed over the internet or via wireless media. However, this exclusion does not include application software whose primary purpose is for entertainment use. The exclusion also does not include software that can be accessed over the Internet where the same software is sold in stores or by electronic download. This exclusion results in confusion and inconsistency. For example, if a user accesses tax software that also can be purchased at a store, the user would be taxed on accessing the tax software. However, if this same tax software was only accessible online, it would not be taxable.
Under Idaho’s proposed HB 598 some confusion was eliminated. For example, the inconsistent results for the tax on software would be eliminated. However, other tax issues would remain unsettled for software products. For example, digital subscriptions to access digital movies which the user streams remain uncertain. Here, the software to view a movie is provided free of charge and the movie does not reside on users computer.
Will Idaho take the position of a “true object” analysis of this transaction or introduce another amendment to clarify? As this blog is being posted, the legislation is on the Governor’s desk for his signature.