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LAW AND ORDER: How TSheets helped stop a bad tax on SaaS

Today was a good day. The Idaho State Legislature passed the Cloud Services Clarification Act. To think that just a few weeks ago, I was testifying before the Revenue and Taxation Committee in support of the bill. A month before that, I was being interviewed for a Wall Street Journal Article about the impact state taxes have on the cloud-based services industry, focusing on our time tracking tech company. And in January, a blog post of mine went semi-viral, spreading the word on how SaaS taxes could hurt our customers and the state I love.

Cloud computing time tracking system

But believe me, because of this issue, I’ve had bad days too. Late in 2012, I stared in disbelief as a customer told me the tax commission was attempting to bully him into paying sales tax on our service.

A quick recap: In Idaho, the State Tax Commission has never issued a public statement or ruling on the taxability of SaaS technology. That is, until late last year. One day, I got a call from a customer. In an audit, the commission had decided to tax our web-based service. “How could that be,” we asked, “when they choose not to tax other services?” The state even threatened to charge back taxes spanning years.

Was it a misread? A misfire? Why, how and when did the commission so belatedly and backhandedly interpreted the code to suit their benefit? I had a meeting with, well, eventually everyone. I met with tax commissioners to try to explain our valid reasoning. No go. I met with the auditor supervisor, who helpfully recommended that we should seek to create a bill so that tax law could be clarified. I met with members of the tech and software development industry in Idaho. I met with members of the legislature. I met with the Governor.

It was a David and Goliath moment. TSheets and a growing tech sector versus the worst kind of bureaucracy.

Once I began shouting this from a mountaintop, I could not have been more thankful for the conversation I had with Jay Larsen, the president of the Idaho Technology Council (ITC). Jay and the members of the ITC (Mike Reynoldson, Brad Frazer, and Rick Smith, just to name a few) took the initiative and coalesced other software companies in the area and in the IT industry as a whole around this issue! The legislature acted responsively and responsibly. They worked hard to understand the complexity of the issue, with both the tax implications and the technology in question.

This is a huge win for the Idaho legislature and Idaho companies!

Bottom line, it’s just being fair to the companies and individuals that choose to make Idaho home, especially in the highly-mobile tech sector.

Idaho Time Tracking Technology Company

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