UPDATE 4.8.13: Idaho Governor C.L. “Butch” Otter (R) has signed HB 243 into law, effective immediately. The bill “amends existing law to provide that application software accessed over the Internet or through wireless media is not taxable under the state sales and use tax.” While package software is subject to the state’s sales tax (6%), as of April 3, 2013, software as a service is exempt. The hope is that the sales tax exemption will draw cloud computing businesses to the state, as well as keep businesses already in Idaho.
Many states view the growing cloud computing industry as a fertile field for tax revenue. Massachusetts Governor Deval Patrick (D) would like to impose a tax on cloud computing services. Arizona, Indiana, New York, Texas and Washington tax cloud computing services to some degree. On the other hand, Kansas, Nebraska, Rhode Island, Tennessee, Vermont, Virginia and Wisconsin exempt cloud computing services more than they tax them (Wall Street Journal).
Idaho House Bill 243 “Amends existing law to provide that application software accessed over the Internet or through wireless media is not taxable under the state sales and use tax.” The bill was introduced to the House on March 4, and yesterday the Revenue and Taxation Committee unanimously gave it a “do pass recommendation” before filing it for a second reading.
If the bill becomes law, cloud-computing software would be defined as a service rather than a tangible product. Services are not subject to sales and use tax in Idaho.
A Good Thing
Jeff Sayer, director of the Idaho Department of Commerce, supports the measure. Speaking before the House Revenue and Taxation, he said “This is one of those moments where Idaho can send a positive message to its existing software companies. And we can send a message to the rest of the world that Idaho is friendly to new software employers.” (Boise Weekly).
The Idaho Technology Council notes that applicable Idaho tax statutes were “enacted in 1986, long before could computing even existed. … It’s clear that cloud computing is a new business model that cannot be shoehorned into previous tax policies.” ITC argues that “if cloud computing services are taxed, it will created unintended consequences that will ripple through Idaho’s economy.” For example, businesses that sell cloud computing services could relocate to different states. (Idaho Statesman).
Not A Good Thing
The Idaho Tax Commission takes a different stance, noting that allowing an exemption for the service “could cost the state as much as $700,000 annually.” (Boise Weekly).
The Next Step
HB 243 now moves to the full House for a vote.