Otter lauds expanded ‘cloud’ software tax exemption at mock signing ceremony

Gov. Butch Otter has been holding a series of mock signing ceremonies for bills he signed into law this year earlier and quietly. This morning, as he celebrated with backers of HB 598 , this year’s “cloud services” sales tax exemption bill, Otter was asked why he didn’t just go public when he took the action.

“It was all the timing,” he said. “Quite frankly, every one of the bills, it’s been timing. When we have a mock session, it’s a result of the folks wanting to get together one more time, saying, ‘Job well done,’ and making sure those that worked the hardest on it got the credit for it, and that’s not always possible during the waning days of the session, or the 10 days after.” Otter said if he’d waited to sign HB 598 until all its backers were available, “Then it would’ve become law without my signature, and I was so supportive of this, that wasn’t going to happen.”

The bill expands a law that passed last year to exempt software services delivered through the “cloud” from sales tax, under the argument that those are services, not tangible personal property. This year’s bill is much more broad; the state Tax Commission objected that its fiscal note wasn’t accurate, and its wording could lead to exempting numerous other software sales that could cost the state as much as $40 million a year in lost sales taxes. That would include not only services delivered through the “cloud,” but also downloaded software and so-called “load and leave” software that companies have installed on their systems.

Asked about those concerns, Otter said, “Well, just like with any legislation, it’s going to be a work in progress. And if we’ve got unintended consequences … then we’ll have to make those changes.” He said, “I heard what the Tax Commission was saying. They told me what they were going to say when they went up to talk about it, and I said, ‘Well, then it’s going to be up to you guys to come back and say, ‘Here’s how we achieve what we intended here, but at the same time clean up the unintended consequences that we cause.’”

Joining Otter at today’s ceremony were House Majority Leader Mike Moyle; Idaho Technology Council President Jay Larsen; Kount.com Vice President Rich Stuppy, the council’s chairman; Hawley Troxell attorney Rick Smith, whom Larsen describe as “our tax guru here,” Micron lobbyist Mike Reynoldson; and more. “We had so many industry folks really support this legislation, and we’re so thrilled about this passing and the support we’re getting from our state government,” Larsen said. He said tech folks across the country are “starting to say, ‘What’s happening in Idaho?’”

Otter signed the bill into law April 4; it takes effect July 1. Its fiscal note says “the fiscal impact is not expected to be significant and is estimated here at $2 million to $5 million annually.”