Idaho bill would clarify tax status of ‘cloud computing’ services

BOISE - At the request of Idaho’s high-tech businesses, the Idaho House’s tax committee agreed this morning to introduce legislation to clarify that “cloud computing” services delivered over the Internet are services – not tangible goods subject to the sales tax. That’s been an issue for a growing number of Idaho high-tech firms since the Idaho State Tax Commission in October said it interpreted state law to mean software is taxable property regardless of how it’s delivered to the customer. Jay Larsen, CEO of the Idaho Technology Council, told the House Revenue and Taxation Committee he’s not talking about purchases of software. Instead, cloud computing essentially involves people renting computing power, electronic storage space and other services over the Internet through subscriptions. In recent months, he said, a number of high-tech firms have been audited by the state Tax Commission and told they have to pay large amounts of back sales taxes. “This tax has caused a lot of people to consider moving their operations out of the state so they would not have to pay that tax,” Larsen said. “It says if your servers are in the state of Idaho, you pay 6 percent more than if your server is in the state of Oregon.” He urged the lawmakers to “make it so it’s more competitive for the industry here in the state of Idaho.” “This legislation will help set the foundation to continue to show that we have the right infrastructure from a public policy standpoint to support tech companies and software companies as they grow and develop,” Larsen told the committee. Rep. Dell Raybould, R-Rexburg, said, “You’re not an owner of this property, because you can’t dispense it, you can’t modify it, you can’t change it. So actually, what you’re doing is just renting it. You’re renting it from the provider. … Is that correct?” Larsen agreed. Several other committee members had questions, including about the difference between subscribing to a cloud-computing service and downloading software online. Rep. JoAn Wood, R-Rigby, said the committee would explore the issue further and moved to introduce the bill. That motion passed unanimously, clearing the way for a full hearing on the measure. Larsen said the Idaho Technology Council is an industry organization “focused on growing technology and innovation in the state of Idaho and the region.” Its membership consists of nearly 200 Idaho businesses. The Wall Street Journal reported recently that Idaho is one of six states since 2009, including Washington, that have moved to apply sales taxes to cloud services in some form; while six other states, including Kansas and Nebraska, have reached the opposite conclusion in the same time period, deciding that cloud services should be exempt from sales taxes.