Idaho Enacts Legislation to Clarify that Software Accessed over the Internet Is Not Subject to Tax

Saturday, April 6th, 2013


When Idaho Governor C.L. "Butch" Otter signed House Bill 243 (HB 243) into law on April 3, Idaho clarified that software accessed over the Internet is not subject to sales and use tax. 2013 Idaho Sess. Laws ch. 271. HB 243 accomplishes this by revising Idaho's definition of tangible personal property, and it became effective upon its passage.

Previously, Idaho defined the term "tangible personal property" to specifically include any computer software that is not custom software. Based on that definition, the State Tax Commission had taken the position that any transfer or use of canned software was taxable. The new legislation effectively reverses that position with respect to software that is accessed over the Internet.

Now the term "tangible personal property" includes computer software that is neither custom software nor "application software accessed over the internet or through wireless media." Thus, software that is simply accessed over the Internet, which is often referred to as "ASP software," is not considered to be tangible personal property. And, accordingly, any charges to access ASP software are not subject to Idaho's sales or use tax. In fact the legislature's Statement of Purpose explains that "this type of software . . . is economically equivalent to a service, and is not subject to tax."

We have tracked and reported on similar changes in other states. In June, we explained that Vermont had taken similar action by enacting legislation that reversed the position taken by that state's taxing authority. Likewise, we reported on last summer's ruling by the Pennsylvania Department of Revenue that clarified that Pennsylvania does impose sales tax on "cloud computing." In fact, TTR is the only tax research firm to comprehensively address the taxability of cloud computing in all states.

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TTR has a website that companies subscribe to and use daily. This website provides a list of everything that can be bought or sold in the U.S. It provides simple answers to whether buying or selling these items is taxable (subject to a sales tax or other tax), and it provides all the legal authority to support these tax answers.

TTR likes to keep things simple and fun, which is why it has great people who provide help to clients on any support questions they have about transaction tax issues.

Please visit TTR on the web at or call 866.578.8193.

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