Computer Equipment, Software, And Data Services

IDAHO ADMINISTRATIVE CODE IDAPA 35.01.02 State Tax Commission Idaho Sales & Use Tax Administrative Rules Section 027 Page 12 Sections 63-3613, 63-3616, Idaho Code 01. Definitions. For purposes of this section, the following terms will have the following meanings: (7-1-26) a. Computer. A programmable machine or device having information processing capabilities that includes word, data, and math processing equipment, testing equipment, programmable microprocessors, and any other integrated circuit embedded in manufactured machinery or equipment. (7-1-26) b. Computer Hardware. A physical computer assembly and all peripherals, whether attached physically or remotely by any type of network, and includes all equipment, parts and, supplies. (7-1-26) c. Computer Program. A sequence of instructions written for the purpose of performing a specific operation on a computer. (7-1-26) d. Storage Media. Storage media include, but are not limited to, hard disks, optical media discs, diskettes, magnetic tape data storage, solid state drives, and other semiconductor memory chips used for nonvolatile storage of information readable by a computer. (3-31-22) e. Cloud Storage. A method of storing digital data on remote servers, accessible via the internet, rather than on a physical device or local network, managed by a third-party provider. (7-1-26) 02. Canned Software. When a sale of canned software is taxable, tax applies to the entire amount charged to the customer. If the consideration consists of license fees, royalty fees, right to use fees or program design fees, whether for a period of minimum use or for extended periods, all fees are included in the taxable price. The taxability of canned software depends on how it is delivered. (7-1-26) a. If it is sold using a physical package but the package doesn’t contain the canned software on storage media, it isn’t tangible personal property and the sale isn’t taxable. A printed key code sold in a box that allows the user to download canned software and activate the canned software using the key code isn’t taxable. (7-1-26) 03. Maintenance Contracts. Maintenance contracts sold in connection with the sale or lease of taxable canned software generally provide that the buyer will be entitled to receive periodic program enhancements and error correction, often referred to as upgrades, either on storage media or through remote telecommunications. The maintenance contract may also provide that the buyer will be entitled to telephone or on-site support services. (7-1-26) a. Mandatory maintenance contract. If the maintenance contract is a condition of the sale, lease, or rental of taxable canned software, the sales price is taxable. Tax applies whether or not the charge for the maintenance contract is separately stated from the charge for software. In determining whether an agreement is optional or mandatory, the terms of the contract will be controlling. (7-1-26) b. Optional maintenance contract. If the maintenance contract is optional to the buyer of taxable canned software: (7-1-26) i. Then only the portion of the contract fee representing upgrades is taxable if the fee for any maintenance agreement support services is separately stated and the upgrades are delivered on storage media; (3-31-22) ii. If the fee for any maintenance agreement support services isn’t separately stated from the fee for upgrades and the upgrades are delivered on storage media, then fifty percent (50%) of the entire charge for the maintenance contract is taxable; (7-1-26) iii. If the maintenance contract only provides upgrades delivered on storage media, and no maintenance agreement support services, then the entire sales price of the contract is taxable; (3-31-22) IDAHO ADMINISTRATIVE CODE IDAPA 35.01.02 State Tax Commission Idaho Sales & Use Tax Administrative Rules Section 028 Page 13 iv. If the maintenance contract only provides support services, and the customer isn’t entitled to or doesn’t receive any canned computer software upgrades or enhancements, then the sale of the contract isn’t taxable. (7-1-26) c. If an optional software maintenance contract provides for software updates to be delivered electronically but also allows a customer to receive software updates on storage media, no portion of the contract is taxable unless the customer receives software updates on storage media. (3-31-22) 04. Reports Compiled by a Computer. The sale of statistical reports, graphs, diagrams, or any other information produced or compiled by a computer and sold or reproduced for sale in substantially the same form as it is produced is a sale of tangible personal property and is taxable if the final product is printed or delivered in an electronic format on storage media. If a report is compiled from information furnished by the same person to whom the finished report is sold, the report will be taxable unless the person selling the report performs some sort of service regarding the data or restates the data in substantially different form than that from which it was originally presented or delivers the report to the buyer electronically. (7-1-26) a. When additional copies of records, reports, manuals, tabulations, etc., are provided, tax applies to the charges for those copies. (7-1-26) 05. Cloud or Remote Data Storage. Charges to store data on storage media owned and controlled by another party is a nontaxable service. (7-1-26) 06. Training Services. Separately stated charges for training services are not taxable, unless they are incidental services agreed to be rendered as a part of the sale of tangible personal property. (7-1-26) a. When separate charges are made for printed training materials such as books or manuals sales tax applies. (7-1-26) b. When training materials are provided at no cost to the buyer in conjunction with the sale of tangible personal property, the training materials are included in the sales price of the tangible personal property. (7-1-26) c. When no tangible personal property is sold and training materials are provided at no charge to the customer, the provider of the training is the consumer of the training materials and pays sales or use tax on the value of the materials. (7-1-26) 07. Custom Software. Tax doesn’t apply to the transfer of custom software or custom programming services performed in connection with the sale or lease of computer equipment if such charges are separately stated from the charges for the equipment. (7-1-26) a. Custom programming charges not separately stated from the sale or lease of equipment are taxable. (7-1-26) b. Custom software includes a program prepared for the special order of a customer who will use it to produce and sell or lease copies of the program. The resale of the program by the customer for who the custom software was prepared is a sale of canned software. (7-1-26) 08. Examples. Available at Sales and Use Tax Examples. (7-1-26)