Motivated by a desire to attract new “high-tech” businesses and add higher quality jobs to their economy, Idaho has enacted House Bill 598. Effective July 1, 2014 cloud computing services will no longer be subject to sales or use tax.
During the signing ceremony, the Governor explained the purpose of the bill, saying “services are not taxed in Idaho” and that the bill was intended to recognize that “services delivered through the internet are no different.” Thus, the law is intended to clarify that internet based software services are considered services, not tangible personal property and as such are exempt from sales and use tax.
As written, the bill exempts the following software services from sales and use tax:
• Computer software that is delivered electronically;
• Remotely accessed computer software (what is commonly referred to as “software as a service” or SaaS); 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.
However, digital music, books, videos (unless live streaming) and games are not exempt from sales tax under the new law. Although level of uncertainty still exists regarding the Idaho Department of Revenue’s interpretation and enforcement of the new law, the law still represents a significant step in Idaho’s tax reform process.