Idaho Sales Tax & Audit Guide
Straightforward Answers to Your Idaho Sales Tax Questions.
- Do I need to collect Idaho sales tax?
- Should I be collecting or paying Idaho use tax?
- What do I do if I should have been collecting but haven't?
- I received an audit notice. What should I do?
- Guidance on fighting a sales tax assessment in Idaho.
Who Needs to Collect Idaho Sales and Use Tax?
Like most states, to be subject to Idaho sales tax collection and its rules, your business must:
1) Have nexus with Idaho, and
2) Sell or use something subject to Idaho sales tax.
How is Nexus Established in Idaho?
- Owns Idaho property in
- Has an office, sales room, warehouse, or employees in Idaho
- Has sales representatives or agents in Idaho
- Keeps goods in Idaho that you will sell
Any individual, business, nonprofit organization, or government agency can be a retailer. Retailers:
- Sell to a consumer who will not resell or lease the product, or
- Make more than two retail sales during any 12-month period, or
- Have not more than two sales, but make it known they sell taxable products or services, or
- Both sell goods and improve tangible property
A retailer must have a seller's permit to:
- Sell, lease, or rent tangible personal property
- Rent hotel, motel, lodging, and campground accommodations
- Sell magazine or newspaper subscriptions
- Charge fees for admissions or recreation
- Make sales using vending machines
Additionally, businesses that do not have a physical presence in Idaho can establish economic nexus by exceeding a certain annual sales threshold.
Economic Nexus (Wayfair Law) and Internet Sales in Idaho
Retailers and marketplace facilitators who do not have a physical presence in Idaho must collect Idaho sales tax when sales in Idaho exceed $100,000 in the current or previous year.
Retailers and marketplace facilitators whose sales totaled less than $100,000 are not required to have a seller's permit and do not need to collect sales tax.
See Guides for different business types for more details.
Marketplace facilitators, combined sales over $100,000
A marketplace facilitator is a platform like Amazon, Etsy, or Ebay, that provides a market for others to sell. Following Wayfair, many states started enacting laws, which treated such platforms as they are the sellers for sales tax purposes, even though the sale is technically made by another on their platform or marketplace. Moreover, marketplace facilitators are treated as though they have a physical presence and must collect sales tax if sales on their platform exceed $100,000 in a calendar year.
Out-of-state retailers, sales over $100,000
- You're a retailer without a physical presence in Idaho.
- You have Idaho sales.
- Your total sales in Idaho, including any made through a marketplace facilitator, exceeded $100,000 in the current or previous calendar year.
If you meet all the above criteria, as of June 1, 2019:
You must get an Idaho seller's permit if you don't already have one. For Idaho sales you’ve made through a marketplace facilitator, see "Third-party sellers." (the next section).
If you are a third-party seller, meaning you sell tangible goods through a marketplace facilitator, you should know that as of June 1, 2019, Idaho law now requires marketplace facilitators to collect and forward Idaho sales tax on third-party sales made into Idaho. Have your marketplace facilitator provide written verification of the sales tax they report.
If your marketplace facilitator isn't collecting and remitting tax on your sales, you’ll need to include it on your own seller's permit along with any tax collected on sales made separately from those made through the marketplace facilitator.
Idaho retailers who are also marketplace facilitators
Retailers who have a physical presence in Idaho and are marketplace facilitators must collect Idaho sales tax on all third-party sales into Idaho. You must have separate seller permits for your sales in Idaho and third-party sales. See Guides for different business types for more specifics.
Out-of-state sellers with certain agreements with Idaho retailers can find more information on the Click-through nexus page.
How is the $100,000 gross revenue threshold calculated?
The sales tax rate is applied against the gross sales proceeds or the business's gross income, depending on the sale or service provided.
"Gross proceeds of sales" is the total sales price of tangible personal property including, but not limited to, installation charges and delivery charges.
Gross income is the business's total receipts or total income before any deductions.
Which Sales are Subject to Idaho Sales Tax?
If you have nexus in Idaho, the next step is determining whether the products or services you sell are subject to Idaho sales and use tax.
Unless an item is specifically exempt, sales and rentals of tangible personal property are subject to Idaho sales tax.
The rules seem simple, but many details make applying Idaho’s tax rules to your business challenging. We recommend scheduling a time to review your specific situation with one of our sales tax professionals.
Common Exemptions from Idaho Sales and Use Tax:
Items exempt from Idaho sales tax include:
- Membership fees in a nonprofit hunting/shooting sports organization
- Official documents (e.g., deeds, licenses)
- Electricity, water, natural gas delivered to a consumer through pipes or mains
- Office space
- Living space (motel or hotel rooms rented for 30 days or less are taxable)
- Lockers, as those used at amusement parks, gyms, and airports
- Boat docks
- Parking spaces (but campground or trailer park accommodations of 30 days or less are taxable)
- Storage space
- Booth space at fairs (but renting personal property for use in the booth is taxable)
- Facilities leased for recreation if:
- There is a charge for admission to the facility, and
- Tax is collected on the admission charge
- Taxicab fares
- Bus tolls
- Airplane tickets on chartered or regularly scheduled flights
- Custom computer software
- Software delivered electronically
- Software loaded by the seller and left on the buyer's device (no discs, drives, etc. left with the buyer)
- Some remotely accessed computer software
Note: Digital videos, games, music, and books the buyer has a permanent right to use are tangible personal property.
Sales tax applies to the sales of tangible personal property. It does not generally apply to the sale of services. However, if a sale of tangible property includes incidental services, the tax applies to the total amount charged, including incidental service fees, except separately stated transportation and installation fees. The cost of any product naturally includes labor and manufacturing skills. The fact that the charge for tangible personal property results from labor or creativity does not turn a sale of tangible personal property into a sale of services.
Two kinds of services rendered incidental to a sale are specifically exempt from tax when the service charge is separately stated:
- Charges for transportation after the sale. See Section 63-3613, Idaho Code, and Rule 061
- Installation charges. See Section 63-3613, Idaho Code, and Rule 012
- Separately stated, Sellers may not use nontaxable charges for transportation or installation to avoid tax on the actual sales price of tangible personal property. If the total price allocation is unreasonable, the Commission may adjust it.
Many people ask questions about the taxability of software as a service (SaaS).
Many states already impose a tax on software as a service. As these options proliferate, states are moving to update their tax laws and, naturally, impose a tax.
To determine whether you need to collect tax on software sales, we highly recommend contacting one of our sales tax professionals to help you sort it out.
For now, we’ve summarized Idaho’s software tax rules here:
The term "tangible personal property" includes any computer software except:
- Custom computer programs.
- "Custom computer program" means any computer software prepared exclusively for a customer and includes those services represented by separately stated charges for modifying existing prewritten programs when the modifications are prepared solely for a customer.
- Tax is not imposed on the sale, license, or lease of custom software regardless of the means of program transfer. The tax does not apply to custom software transfer or custom programming services performed as part of the sale or lease of computer equipment if such charges are separately stated from the charges for the equipment.
- Suppose the custom programming charges are not separately stated from the sale or lease of equipment. In that case, they will be considered taxable as part of the sale.
- Custom software includes a program prepared as a special order for a customer who will then use the program to produce, sell or lease copies of the program. The sale of the program by the customer for whom the seller prepared the custom software will be a sale of canned software.
- Computer software that is delivered electronically.
- Remotely accessed computer software.
- "Remotely accessed computer software" means computer software a user accesses over the internet where the user has only the right to use or access the software through a license, lease, subscription, service, or other agreement.
- Remotely accessed computer software is not tangible personal property. Therefore, charges to use or access such software are not taxable.
- The load and leave method delivers computer software, where the vendor or its agent loads the software at the user's location but does not transfer tangible personal property containing the software to the user.
- Under Idaho law, tangible personal property includes computer software that constitutes digital music, digital books, digital videos, and digital games when the purchaser has a permanent right to use such software, regardless of the delivery method or access. This is taxable.
- If the right to use digital music, digital books, digital videos, or digital games is conditioned on continued payment from the purchaser, it is not a permanent right of use and is not taxable.
- "Canned" or prewritten programs held for general or repeated sale, lease or license, even if the seller initially developed the program on a custom basis or for in-house use, are not considered custom software.
- Modifying an existing prewritten program to meet the customer's needs is custom computer programming only to the extent of the modification and only to the extent that the amount charged for the modification is separately stated on invoices or other billing documents to the purchaser.
See page 21 of Section 27 for more specific details.
Shipping & Handling
The sales price includes charges made for the delivery of goods to the seller, whether transportation and handling charges are separately stated or not.
Charges for transportation and handling of goods to the consumer are not included as a part of the sales price regardless of when the title passes.
Charges Not Separately Stated. Regardless of other provisions of this rule, transportation and handling charges which are not separately stated are included in the taxable sales price.
Are you confused? Here are some examples to help make sense of the taxability of shipping charges:
- Charges for Delivery to the Seller. A customer orders goods from a retailer, which are shipped to a catalog store for customer pick up. The charge to the customer for delivery to the store is a charge for delivery to the seller. It is included in the taxable sales price.
- Freight-In Taxable. A seller of construction equipment orders a part for a customer and separately states charges for freight-in on the invoice to the seller and freight-out to the consumer. The charges for freight-in are part of the taxable price, but charges for freight-out are not taxable.
- Delivery by Retailer. A customer orders building materials from a retailer. The retailer delivers goods to the buyer using the retailer's van. The retailer separately states the transportation charge for the building materials. Because the charge is for delivery to the customer, it is not subject to sales tax.
- Use of Transportation Charges as a Means of Avoiding Sales Tax. The seller offers to give away merchandise worth approximately twenty dollars ($20) if the buyer pays shipping of nineteen dollars and ninety-five cents ($19.95). The total price of nineteen dollars and ninety-five cents ($19. 95) is taxable.
While the general sales tax rules seem straightforward, applying those rules can get tricky when gray areas arise. The Idaho State Tax Commission provides some specific guidance for the following industries:
- Amusement Devices
- Boats, Trailers, and Other Watercraft
- Contractors Working in Idaho
- Farming & Ranching
- Firearms Transfer Fees and Taxes
- Food, Meals, and Drinks
- Governments and Sales Tax
- Hotels, Motels, and Short-Term Rentals
- International Registration Plan (IRP) Vehicles
- Lumber Manufacturing
- Marketplace Facilitators
- Medical Products and Prescriptions Exemption
- Motor Vehicles: Dealers
- Motor Vehicles: Private Parties and Nondealer Retailers
- Nonprofit and Religious Groups
- Off-Highway Vehicles
- Outfitters (#18)
- Printing and Publishing
- Production Exemption
- Recreation and Admissions
- Renting and Leasing Tangible Personal Property
- Repair Shops
- Transportation: Ground, Air, and Railroad Businesses
- Use Tax
- Vending Machines
- Voluntary Disclosure Agreement (VDA)
Determining Local Sales Tax Rates in Idaho
The current Idaho tax rate is 6%. The use tax rate is the same as the sales tax rate.
Local Sales and Use Tax Tables
Learn more about local Idaho sales tax rates. See the chart below for the tax rates of the most populated Idaho cities.
*Exact tax rates vary. Occupancy fees and taxes are not included in this table.
I Should Have Collected Idaho Sales Tax, But I Didn't
Many of our competitors suggest Filing a Voluntary Disclosure Agreement in each state. This is a one-size-fits-all solution that isn't always the best. Our sales tax professionals will work with you to determine your business's best and most cost-effective solution.
If you determine your business has nexus, but you have not collected Idaho sales tax, here are your options:
1. Register and pay back taxes, penalties, and interest, or
2. Complete a VDA to cut penalties (and, in some cases, reduce your tax liability and avoid interest).
Here is what you should know about each option to make the best decision for your business:
Option 1: Register to Pay Back Taxes, Penalties, and Interest.
A VDA is not cost-effective if the past liabilities and penalties are minimal. Sometimes the best resolution for a business is to register with Idaho and pay back taxes, penalties, and interest.
Be wary of the tax professionals recommending a VDA in these cases. They want to make a buck rather than look out for your best interests.
When to consider registration and payment:
- If you established nexus less than 3 or 4 years ago.
- The sales tax penalty is LESS than the professional fees charged for the VDA.
- Your business does NOT have a sales tax collected issue.
Beware: Registering does not generally end past liabilities.
If you're unsure what your past liabilities are, contact us. Our state tax professionals work with you so you can make the right choice for your business.
Option 2: Voluntary Disclosure Agreement (VDA)
Idaho’s lookback period is three years.
In many situations, voluntary disclosures are a valuable tool to reduce extended periods of past exposure.
The voluntary disclosure limits the lookback period to three years. So, if you should have collected sales tax over the past ten years but didn't, you may benefit from doing a VDA.
A VDA may be a good option for you if:
- You established nexus more than 3 or 4 years ago.
- You have a sales tax collected but not remitted issue.
- The sales tax penalty savings is MORE than the professional fees charged for the VDA.
What to Expect During an Audit
The typical audit process is shown in this flowchart. Detailed guidance for each Idaho audit process stage follows in the sections below.
Idaho regularly audits businesses required to charge, collect, and remit various taxes in the state. Many audits begin with a call from an Idaho State Tax Commission sales tax auditor. Shortly after the call, your business will receive a Notification of Intent to Audit. This notification confirms that you were lucky enough to be chosen for an Idaho sales tax audit.
Once the audit is complete, the auditor will send you the assessment and the amount.
It is good to start with getting a state and local tax professional involved to prepare for the audit.
I Received an Idaho Sales Tax Audit Notice. What Should I Do?
Businesses that receive a sales tax audit notice need to consider the following questions:
- If you don’t have sales tax audit experience, how can you trust that the state's auditor abides by the rules and follows proper procedures?
- How will you know when to provide documents or when to push back?
- Do you thoroughly understand your sales and use tax areas of exposure?
- Controlling the audit is paramount to limiting exposure and shaping the results. Are you confident in doing that on your own?
Unless you can confidently answer these questions, hiring a professional is most likely to be the best option.
Contact us to learn how our sales tax professionals can give you the peace of mind and confidence you’ll need during your audit.
Visit our resource pages for more information to help you make critical decisions during your Idaho sales and use tax audit.
What to Expect from an Idaho Sales Tax Auditor
Here is a summary of the general audit process:
- The auditor will conduct pre-audit research.
- The auditor will often schedule and perform an entrance conference.
- The auditor will request records (many of which the auditor is not entitled to and does not need)
Once the auditor receives the necessary records, they will compare your Idaho sales and use tax returns to your federal income tax returns or bank statements to determine whether you reported all applicable or gross sales on your Idaho sales tax return(s).
NOTE: A slight error in how the tax was charged on even a single type of transaction can add up to a significant sales tax liability.
Once the auditor is confident all sales are accounted for, they will:
- Review your exempt and out-of-state sales.
- Conduct a use tax audit – the auditor will request accounts documents to ensure you adequately paid use tax on applicable purchases.
Common areas audited include:
- Advertising Expense
- Auto & Truck Expense
- Repair and Maintenance
- Office Expense
- Miscellaneous Expense
After reviewing all information, the auditor will prepare a proposed audit report which shows preliminary findings, and a preliminary amount due or refund. The proposed audit report is the basis for discussion between you and the auditor; it is not a final determination. It may be estimated in cases where requested information has not been provided.
If a business buys an item online without paying use tax, the business is still obligated to remit the tax to Idaho. Believing otherwise often leads to shocking results for the unsuspecting taxpayer during an audit. Here is more information on Idaho Use Tax.
If you have questions about your situation, contact us to discuss it with one of our tax professionals.
After the Audit – Understand and Defend Your Businesses Rights
The auditor will meet you by phone or in person to present the proposed report and ensure you understand the proposed adjustments.
The auditor will produce an audit report with corresponding work papers to support the Idaho sales and use tax assessment. After reviewing all the documents, the auditor will explain any adjustments.
It is advisable to have a sales tax professional present during this meeting. This is your first opportunity to see the auditor's findings. You'll want to push back on areas where they have overstepped their bounds or misapplied Idaho's sales tax laws.
It's best to hold off on agreeing to the sales tax assessment until a sales tax professional has reviewed it for issues that should be challenged.
|Many businesses wind up drastically overpaying the state because the business owner or in-house accounting personnel weren't well versed in the sales tax laws that, if challenged, could have reduced their sales tax liability.|
In the following sections, we'll cover the process of challenging an Idaho sales tax audit assessment.
Contesting Audit Findings with the Auditor
Idaho Sales Tax Audit Protest Process Flow Chart
NOTE: After 91 days, all appeal rights expire.
You will receive a Notice of Proposed Audit Report requesting you sign (generally within 30 days) and indicate whether you agree or disagree with the proposed findings.
It's essential to review and understand its implications carefully.
The audit report:
- Details of the auditor's findings
- Describes any proposed audit adjustments
- Shows the amount of tax, interest, and penalty due
If you have information that hasn't been provided or believe a mistake has been made, or if you disagree with the findings or how the audit was conducted, you can always discuss the disputed results or address your concerns regarding the examination process with the auditor's manager. A Notice of Deficiency, No Change, or Refund Determination will be issued when the audit is completed.
Audit Closing Conference
The taxpayer has a short period to contest the findings with the auditor. Any issues with the results are handled as follows:
1. Issues related to exemptions, proof of tax paid, and calculations are worth addressing with the auditor.
2. Legal interpretations of sales tax law are often not resolvable at this stage.
After this conference, the auditor will adjust the audit assessment, and a Notice of Deficiency, No Change, or Refund Determination will be issued.
You have 63 days from the date of the audit determination to protest the results. You'll receive information about the protest process along with the audit determination.
Appeal/Protest with The Idaho State Tax Commission
Protest Rights and Audit Finding Confirmation
If you cannot get the case resolved on audit, you have 63 days from the issuance of the Notice of Deficiency Determination to file an appeal, called a protest in Idaho. The protest must contain required information such as your name, the tax period, the items you agree with, and the factual or legal basis of the agency's mistakes. The appeal goes to the same section that issued the NODD, so the odds of getting it resolved initially are slim.
If you cannot resolve your Idaho sales tax issue at that first stop, the case moves up the chain to the Idaho Tax Commission Appeals Unit. The appeals unit is independent of the unit that sent the deficiency; however, they are still technically housed within the agency. You or your sales tax professional have an opportunity to resolve the case with the assigned individual, called a specialist. If you cannot resolve the case with your specialist, you have the right to seek an informal hearing.
Next, assuming an informal hearing is requested, the hearing is set along with deadlines to provide documentation. The informal hearing is just like it sounds, very relaxed. It is more like a conference call than a court proceeding. However, having a sales tax attorney, consultant, or another professional remains crucial, as developing the record and presenting the case is essential to resolve it.
The case can be resolved by upholding, modifying, or canceling the NODD. Like any other dispute, a settlement can also resolve the matter. In either case, a final decision is issued, which ends your fight within the agency.
If you have received a Certificate of Assessment and haven't talked to someone experienced in Idaho State tax, now is the time. Do it before these deadlines pass.
The Tax Commission will issue the final decision within 180 days. If you disagree with the decision of the State Tax Commission, the next step is a petition in District Court.
Settling an Idaho Sales Tax Liability
After any critical notices are issued, settling your Idaho sales tax case with the Idaho State Tax Commission is possible by filing an Idaho Offer in Compromise. The business must meet specific criteria to qualify, but you can get better results negotiating here than with the auditor. However, knowing a fair settlement from an unreasonable settlement will be challenging without experience and knowledge of Idaho tax laws.
DO NOT attempt to negotiate a settlement without an experienced Idaho state and local tax lawyer or other professional.
Contest an Idaho Jeopardy Assessment
Idaho may issue a Notice of Jeopardy Determination in certain situations.
The jeopardy assessment gives the Idaho State Tax Commission the right to try to collect immediately.
Due to the jeopardy nature, the taxpayer only has a very short time to contest the assessment and must place a security deposit to fight the issue.
If you cannot resolve your case with the Tax Commission, you still have a chance to fight your Idaho sales tax assessment – The District Court. While most states have an administrative court to resolve tax disputes, Idaho requires that the case be taken up in judicial court. Like other cases, an attorney is required for this step. It is critical to follow court procedure in filing and presenting the case if it makes it to a hearing. Like the previous steps, the case can be settled and often settled at this step.
Our team has handled hundreds of administrative court cases. It can help your company receive the resolution you are entitled to. Get in touch with us today.
Other Idaho Sales Tax Resources
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