Sales Factor: Special Rules (Rule 551)

Section 63-3027(13), Idaho Code 01. Software Transactions. (4-6-23) a. A license or sale of pre-written software for purposes other than commercial reproduction (or other exploitation of the intellectual property rights) transferred on a tangible medium is treated as the sale of tangible personal property, rather than as either the license or sale of intangible property or the performance of a service. In these cases, the receipts are in this state as determined under the rules for the sale of tangible personal property set forth under Section 63-3027(12), Idaho Code, and related rules. In all other cases, the receipts from a license or sale of software are to be assigned to this state as determined otherwise under Rules 546 through 551 (e.g., depending on the facts, as the development and sale of custom software, see Rule 548.03, as a license of a marketing intangible, see Rule 549.02, as a license of a production intangible, see Rule 549.03, as a license of intangible property where the substance of the transaction resembles a sale of goods or services, see Rule 549.05, or as a sale of intangible property, see Rule 550. (4-6-23) 02. Sales or Licenses of Digital Goods or Services. (4-6-23) a. In general. In the case of a sale or license of digital goods or services, including, among other things, the sale of various video, audio and software products or similar transactions, the receipts from the sale or license are assigned by applying the same rules as are set forth in Subsection 548.03.b.ii. or iii., as if the transaction were a service delivered to an individual or business customer or delivered through or on behalf of an individual or business customer. For purposes of the analysis, it is not relevant what the terms of the contractual relationship are or whether the sale or license might be characterized, depending upon the particular facts, as, for example, the sale or license of intangible property or the performance of a service. See Subsections 549.05 and 550.01.c. (4-6-23) b. Telecommunications Companies. In the case of a taxpayer that provides telecommunications or ancillary services, receipts from the sale or license of digital goods or services are assigned by applying the rules set forth in Subsection 548.03.b.ii. or iii. as if the transaction were a service delivered to an individual or business customer or delivered through or on behalf of an individual or business customer. However, in applying these rules, if the taxpayer cannot determine the state or states where a customer receives the purchased product it may reasonably approximate this location using the customer’s “place of primary use” of the purchased product. (4-6-23) i. “Place of primary use” means the street address representative of where the customer's use of the telecommunications service primarily occurs, which shall be the residential street address or the primary business street address of the customer. In the case of mobile telecommunications services, “place of primary use” shall be within the licensed service area of the home service provider. (4-6-23) 552. – 557. (RESERVED) IDAHO ADMINISTRATIVE CODE IDAPA 35.01.01 Idaho State Tax Commission Income Tax Administrative Rules Section 558 Page 83 558. SALES FACTOR: COSTS OF PERFORMANCE ELECTION FOR COMMUNICATIONS COMPANIES (RULE 558). Section 63-3027(15), Idaho Code 01. Election. A communications company as defined in Section 63-3027(1)(e), Idaho Code, shall source gross receipts from transactions other than sales of tangible personal property pursuant to Section 63- 3027(13), Idaho Code, and Rules 546, 548, 549, as applicable, unless it elects to source such gross receipts pursuant to Section 63-3027(15), Idaho Code, and Rule 559. The election is made by attaching a written statement of the election to the return. The statement must affirmatively state whether (1) all the income-producing activity is performed in this state, or (2) the income-producing activity is performed both in and outside this state and a greater proportion of the income producing activity is performed in this state than in any other state, based on costs of performance. This election may not be changed for a taxable year after the return for that year has been filed. An election under Section 63-3027(15), Idaho Code, and Rule 559 is independent from any election made pursuant to Section 63-3027(10)(b), Idaho Code, and Subsection 310.03. (4-6-23) 02. Election Binding for Future Years. The election is binding for all years thereafter; a change off election in future years may only occur with the written permission of the tax commission. A petition to change the election must include an explanation of the legal or factual basis for requesting the change and a computation of the taxpayer’s Idaho taxable income and tax liability computed using both the prior reporting method and the method the taxpayer is petitioning to use for the year of change. The written petition requesting the change of reporting method must be filed with the Tax Commission at least thirty (30) days prior to the due date for filing the tax return. (4-6-23) 559. SALES FACTOR: SALES OTHER THAN SALES OF TANGIBLE PERSONAL PROPERTY IN IDAHO FOR COMMUNICATIONS COMPANIES ELECTING TO USE COSTS OF PERFORMANCE (RULE 559). Section 63-3027(15), Idaho Code 01. In General. Communications companies as defined in Section 63-3027(1)(e), Idaho Code, may elect to source gross receipts from transactions other than sales of tangible personal property, including transactions with the United States Government, under the provisions of Section 63-3027(15), Idaho Code, and this Rule 559. Gross receipts are attributed to Idaho if the income producing activity that generates the receipts is performed wholly within Idaho. Also, gross receipts are attributed to Idaho if, with respect to a particular item of income, the income producing activity is performed within and without Idaho but the greater part of the income producing activity is performed in Idaho, based on costs of performance. (4-6-23) 02. Income Producing Activity. The term income producing activity applies to each separate item of income and means the transactions and activity engaged in by the taxpayer in the regular course of its trade or business for the ultimate purpose of producing that item of income. The activity includes transactions and activities performed on behalf of a taxpayer, such as those conducted on its behalf by an independent contractor. (4-6-23) a. Income producing activity includes the following: (4-6-23) i. The rendering of personal services by employees or by an agent or independent contractor acting on behalf of the taxpayer or the use of tangible and intangible property by the taxpayer or by an agent or independent contractor acting on behalf of the taxpayer in performing a service; (4-6-23) ii. The sale, rental, leasing, licensing or other use of real property; (4-6-23) iii. The rental, leasing, licensing or other use of tangible personal property; and (4-6-23) iv. The sale, licensing or other use of intangible personal property. (4-6-23) b. The mere holding of intangible personal property is not, by itself, an income producing activity. (4-6-23) 03. Costs of Performance. Costs of performance are the direct costs determined in a manner IDAHO ADMINISTRATIVE CODE IDAPA 35.01.01 Idaho State Tax Commission Income Tax Administrative Rules Section 559 Page 84 consistent with generally accepted accounting principles and according to accepted conditions or practices of the taxpayer’s trade or business to perform the income producing activity that gives rise to the particular item of income. Included in the taxpayer’s cost of performance are taxpayer’s payments to an agent or independent contractor for the performance of personal services and utilization of tangible and intangible property that give rise to the particular item of income. (4-6-23) 04. Application. In general, receipts, other than from sales of tangible personal property, in respect to a particular income producing activity are in Idaho if: (4-6-23) a. The income producing activity is performed wholly in Idaho; or (4-6-23) b. The income producing activity is performed both within and without Idaho and a greater part of the income producing activity is performed in Idaho than in any other state, based on costs of performance. (4-6-23) 05. Special Rules. The following are rules and examples for determining when receipts from the income producing activities described below are in Idaho: (4-6-23) a. Gross receipts from the sale, lease, rental or licensing of real property are in Idaho if the real property is located in Idaho. (4-6-23) b. Gross receipts from the rental, lease or licensing of tangible personal property are in Idaho if the property is located in Idaho. The rental, lease, licensing or other use of tangible personal property in Idaho is a separate income producing activity from the rental, lease, licensing or other use of the same property while in another state. Consequently, if property is within and without Idaho during the rental, lease or licensing period, gross receipts attributable to Idaho will be measured by the ratio that the time the property was present or used in Idaho bears to the total time or use of the property everywhere during the period. (4-6-23) c. Example. A taxpayer owns ten (10) bulldozers. During the year, each bulldozer was in Idaho fifty (50) days. The receipts attributable to the use of each bulldozer in Idaho are separate items of income and are determined as follows: ((ten (10) bulldozers x fifty (50) days) / (ten (10) bulldozers x three hundred sixty five (365) days)) x total receipts = receipts attributable to Idaho. (4-6-23) d. Gross receipts for the performance of personal services are attributable to Idaho to the extent the services are performed in Idaho. If services relating to a single item of income are performed within and without Idaho, they are attributable to Idaho only if a greater portion of the services were performed in Idaho, based on costs of performance. Usually if services are performed within and without Idaho, they constitute a separate income producing activity. In this case the gross receipts attributable to Idaho are measured by the ratio that the time spent in performing the services in Idaho bears to the total time spent in performing the services everywhere. Time spent in performing services includes the time spent in performing a contract or other obligation that generates the gross receipts. This computation does not include personal service not directly connected with the performance of the contract or other obligation, as for example, time spent in negotiating the contract. (4-6-23) e. Example. The taxpayer, a road show, gave theatrical performances at various location in State X and in Idaho during the tax period. All gross receipts from performances given in Idaho are attributed to Idaho. (4-6-23) f. Example. The taxpayer, a public opinion survey corporation, conducted a poll in State X and in Idaho for the sum of nine thousand dollars ($9,000). The project required six hundred (600) man hours to obtain the basic data and prepare the survey report. Two hundred (200) of the six hundred (600) man hours were expended in Idaho. The receipts attributable to Idaho are three thousand dollars ($3,000): (200 man hours/600 man hours) x $9,000. (4-6-23) 06. Services on Behalf of the Taxpayer. An income producing activity performed on behalf of a taxpayer by an agent or independent contractor is attributed to Idaho if such income producing activity is in Idaho. (4-6-23) a. Such income producing activity is in Idaho: (4-6-23) IDAHO ADMINISTRATIVE CODE IDAPA 35.01.01 Idaho State Tax Commission Income Tax Administrative Rules Section 560 Page 85 i. When the taxpayer can reasonably determine at the time of filing that the income producing activity is actually performed in Idaho by the agent or independent contractor. However, if the activity occurs in more than one state, the location where the income producing activity is actually performed will be deemed to be not reasonably determinable at the time of filing under Subparagraph 559.06.a.i. of this rule. (4-6-23) ii. If the taxpayer cannot reasonably determine at the time of filing where the income producing activity is actually performed, when the contract between the taxpayer and the agent or independent contractor indicates it is to be performed in Idaho and the portion of the taxpayer’s payment to the agent or contractor associated with such performance is determinable under the contract. (4-6-23) iii. If it cannot be determined where the income producing activity is actually performed and the agent or independent contractor’s contract with the taxpayer does not indicate where it is to be performed, when the contract between the taxpayer and the taxpayer’s customer indicates it is to be performed in Idaho and the portion of the taxpayer’s payment to the agent or contractor associated with such performance is determinable under the contract; or (4-6-23) iv. If it cannot be determined where the income producing activity is actually performed and neither contract indicates where it is to be performed or the portion of the payment associated with such performance, when the domicile of the taxpayer’s customer is in this state. If the taxpayer’s customer is not an individual, “domicile” means commercial domicile. (4-6-23) b. If the location of the income producing activity by an agent or independent contractor, or the portion of the payment associated with such performance, cannot be determined under Subparagraphs 550.06.a.i. through 559.06.a.iii. of this rule, or the taxpayer’s customer’s domicile cannot be determined under Subparagraph 559.06.a.iv. of this rule, or, although determinable, such income producing activity is in a state in which the taxpayer is not taxable, such income producing activity is to be disregarded. (4-6-23)