In the early days of technology innovation, software was distributed on CDs that users could place on the hard drives of their personal computers. During this era, a policy was developed by the Idaho Tax Commission that treated software sales, like other goods, as subject to sales tax.
But software, as most of us know, evolved into a service delivered by web-based subscription systems. The industry segment is actually called “software as a service.” State tax policy was blind to that transformation.
Unfortunately, rather than accept the transformation in delivery of software’s intellectual property and exempt this delivery of service — like all other services — from sales tax, the Idaho Tax Commission dug in. Idaho Technology Council members voiced their concerns that if the position of the Idaho Tax Commission were not reversed, they would have to move their fast-growing companies out of Idaho.
Through hard work of council members, the Idaho Commerce Department, the Boise Metro Chamber of Commerce and other groups, in 2013 the Idaho Legislature passed the Cloud Services Clarification Act, or CSCA. The law, supported by Gov. Butch Otter, passed by powerful majorities in the House and Senate. It was intended to clarify that cloud-based services are not taxable transactions in Idaho.
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Tech leaders in Idaho thought the bill was clear enough, because we worked with the Idaho Tax Commission on developing the legislation. However, when it came to implementation, we reached significant impasses on language that restricted the law’s effectiveness. Now, members of the Idaho technology economy have been forced to develop an even more explicit bill that identifies software as a sales-tax-exempt service in Idaho.
The mission of the Idaho Technology Council is to help Idaho tech companies start, grow and thrive. A critical element of this mission is the development of business-friendly policies. The council and its allies must again move aggressively to resolve this problem, which could directly and adversely affect Idaho’s technology ecosystem.
Passing the CSCA was a step in the right direction, but the continuing headwinds against this service industry from the tax commission require the Legislature to consider the strengthened bill. Tech employers widely support it.
The work of council members doesn’t stop there. Through the continued efforts of these key employers, it is the council’s vision to create growth for existing tech companies, trigger future generations of innovation in the state and develop growth-friendly tax policy that will create a center of excellence in Idaho for the software industry.
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