Idaho Admin. Code r. 35.01.01.548 - SALES FACTOR: SALE OF A SERVICE
Section 63-3027(13)(c), Idaho Code
01.
General
Rule. The receipts from a sale of a service are in this state if and to
the extent that the service is delivered to a location in this state. In
general, the term "delivered to a location" refers to the location of the
taxpayer's market for the service, which may not be the location of the
taxpayer's employees or property. The rules to determine the location of the
delivery of a service in the context of several specific types of service
transactions are set forth below in Subsections
548.02 through
548.04. (4-6-23)
02.
In-Person Services. (4-6-23)
a. In General . Except as otherwise provided
in this Subsection 548.02,
in-person services are services that are physically provided in person by the
taxpayer, where the customer or the customer's real or tangible property upon
which the services are performed is in the same location as the service
provider at the time the services are performed. This Rule
548 includes situations where the
services are provided on behalf of the taxpayer by a third-party contractor.
Examples of in-person services include, without limitation, warranty and repair
services; cleaning services; plumbing services; carpentry; construction
contractor services; pest control; landscape services; medical and dental
services, including medical testing, x-rays and mental health care and
treatment; childcare; hair cutting and salon services; live entertainment and
athletic performances; and in-person training or lessons. In-person services
include services within the description above that are performed at (1) a
location that is owned or operated by the service provider or (2) a location of
the customer, including the location of the customer's real or tangible
personal property. Various professional services, including legal, accounting,
financial and consulting services, and other similar services as described in
Subsection 548.04 of this rule, although
they may involve some amount of in-person contact, are not treated as in-person
services within the meaning of this Subsection
548.02. (4-6-23)
b. Assignment of Receipts, Rule of
Determination. Except as otherwise provided in this paragraph (b.), if the
service provided by the taxpayer is an in-person service, the service is
delivered to the location where the service is received. Therefore, the
receipts from a sale are in this state if and to the extent the customer
receives the in-person service in this state. In assigning its receipts from
sales of in-person services, a taxpayer must first attempt to determine the
location where a service is received, as follows: (4-6-23)
i. If the service is performed with respect
to the body of an individual customer in this state (e.g. hair cutting or x-ray
services) or in the physical presence of the customer in this state (e.g. live
entertainment or athletic performances), the service is received in this state.
(4-6-23)
ii. If the service is
performed with respect to the customer's real estate in this state or if the
service is performed with respect to the customer's tangible personal property
at the customer's residence or in the customer's possession in this state, the
service is received in this state. (4-6-23)
iii. If the service is performed with respect
to the customer's tangible personal property and the tangible personal property
is to be shipped or delivered to the customer, whether the service is performed
within or outside this state, the service is received in this state if the
property is shipped or delivered to the customer in this state.
(4-6-23)
c. Rule of
Reasonable Approximation. In an instance in which the state or states where a
service is actually received cannot be determined, but the taxpayer has
sufficient information regarding the place of receipt from which it can
reasonably approximate the state or states where the service is received, the
taxpayer shall reasonably approximate such state or states.
(4-6-23)
03.
Services Delivered to the Customer or on Behalf of the Customer, or
Delivered Electronically Through the Customer. (4-6-23)
a. In General . If the service provided by the
taxpayer is not an in-person service within the meaning of Subsection
548.02 of this rule or a
professional service within the meaning of Subsection
548.04 of this rule), and the
service is delivered to or on behalf of the customer, or delivered
electronically through the customer, the receipts from a sale are in this state
if and to the extent that the service is delivered in this state. For purposes
of this Subsection 548.03, a
service that is delivered "to" a customer is a service in which the customer
and not a third party is the recipient of the service. A service that is
delivered "on behalf of' a customer is one in which a customer contracts for a
service but one or more third parties, rather than the customer, is the
recipient of the service, such as fulfillment services, or the direct or
indirect delivery of advertising to the customer's intended audience (see
Subparagraph 548.03.b.i. below and the Example under 548.03.b.i.(3)(d) below).
A service can be delivered to or on behalf of a customer by physical means or
through electronic transmission. A service that is delivered electronically
"through" a customer is a service that is delivered electronically to a
customer for purposes of resale and subsequent electronic delivery in
substantially identical form to an end user or other third-party recipient.
(4-6-23)
b. Assignment of Receipts.
The assignment of receipts to a state or states in the instance of a sale of a
service that is delivered to the customer or on behalf of the customer, or
delivered electronically through the customer, depends upon the method of
delivery of the service and the nature of the customer. Separate rules of
assignment apply to services delivered by physical means and services delivered
by electronic transmission. (For purposes of this Subsection
548.03, a service delivered by
an electronic transmission is not a delivery by a physical means). If a rule of
assignment set forth in this Subsection
548.03 depends on whether the
customer is an individual or a business customer, and the taxpayer acting in
good faith cannot reasonably determine whether the customer is an individual or
business customer, the taxpayer shall treat the customer as a business
customer. (4-6-23)
i. Delivery to or on Behalf
of a Customer by Physical Means Whether to an Individual or Business Customer.
Services delivered to a customer or on behalf of a customer through a physical
means include, for example, product delivery services where property is
delivered to the customer or to a third party on behalf of the customer; the
delivery of brochures, fliers or other direct mail services; the delivery of
advertising or advertising-related services to the customer's intended audience
in the form of a physical medium; and the sale of custom software (e.g., where
software is developed for a specific customer in a case where the transaction
is properly treated as a service transaction for purposes of corporate
taxation) where the taxpayer installs the custom software at the customer's
site. The rules in this Subparagraph 548.03.b.i. apply whether the taxpayer's
customer is an individual customer or a business customer. (4-6-23)
(1) Rule of Determination. In assigning the
receipts from a sale of a service delivered to a customer or on behalf of a
customer through a physical means, a taxpayer must first attempt to determine
the state or states where the service is delivered. If the taxpayer is able to
determine the state or states where the service is delivered, it shall assign
the receipts to that state or states. (4-6-23)
(2) Rule of Reasonable Approximation. If the
taxpayer cannot determine the state or states where the service is actually
delivered, but has sufficient information regarding the place of delivery from
which it can reasonably approximate the state or states where the service is
delivered, it shall reasonably approximate the state or states.
(4-6-23)
ii. Delivery to
a Customer by Electronic Transmission. Services delivered by electronic
transmission include, without limitation, services that are transmitted through
the means of wire, lines, cable, fiber optics, electronic signals, satellite
transmission, audio or radio waves, or other similar means, whether or not the
service provider owns, leases or otherwise controls the transmission equipment.
In the case of the delivery of a service by electronic transmission to a
customer, the following provisions apply. (4-6-23)
(1) Services Delivered By Electronic
Transmission to an Individual Customer. (4-6-23)
(a) Rule of Determination. In the case of the
delivery of a service to an individual customer by electronic transmission, the
service is delivered in this state if and to the extent that the taxpayer's
customer receives the service in this state. If the taxpayer can determine the
state or states where the service is received, it shall assign the receipts
from that sale to that state or states. (4-6-23)
(b) Rules of Reasonable Approximation. If the
taxpayer cannot determine the state or states where the customer actually
receives the service, but has sufficient information regarding the place of
receipt from which it can reasonably approximate the state or states where the
service is received, it shall reasonably approximate the state or states. If a
taxpayer does not have sufficient information from which it can determine or
reasonably approximate the state or states in which the service is received, it
shall reasonably approximate the state or states using the customer's billing
address. (4-6-23)
(2)
Services Delivered By Electronic Transmission to a Business Customer. (4-6-23)
(a) Rule of Determination. In the case of the
delivery of a service to a business customer by electronic transmission, the
service is delivered in this state if and to the extent that the taxpayer's
customer receives the service in this state. If the taxpayer can determine the
state or states where the service is received, it shall assign the receipts
from that sale to the state or states. For purposes of this subpart
(548.03.b.ii.(2), it is intended that the state or states where the service is
received reflect the location at which the service is directly used by the
employees or designees of the customer. (4-6-23)
(b) Rule of Reasonable Approximation. If the
taxpayer cannot determine the state or states where the customer actually
receives the service, but has sufficient information regarding the place of
receipt from which it can reasonably approximate the state or states where the
service is received, it shall reasonably approximate the state or states.
(4-6-23)
(c) Secondary Rule of
Reasonable Approximation. In the case of the delivery of a service to a
business customer by electronic transmission where a taxpayer does not have
sufficient information from which it can determine or reasonably approximate
the state or states in which the service is received, the taxpayer shall
reasonably approximate the state or states as set forth in Rules
546 through
551. In these cases, unless the
taxpayer can apply the safe harbor set forth in Subsection
548.03.b.ii.(2)(d) below,
the taxpayer shall reasonably approximate the state or states in which the
service is received as follows: first, by assigning the receipts from the sale
to the state where the contract of sale is principally managed by the customer;
second, if the state where the customer principally manages the contract is not
reasonably determinable, by assigning the receipts from the sale to the
customer's place of order; and third, if the customer's place of order is not
reasonably determinable, by assigning the receipts from the sale using the
customer's billing address; provided, however, if the taxpayer derives more
than five percent (5%) of its receipts from sales of services from any single
customer, the taxpayer is required to identify the state in which the contract
of sale is principally managed by that customer. (4-6-23)
(d) Safe Harbor. In the case of the delivery
of a service to a business customer by electronic transmission a taxpayer may
not be able to determine, or reasonably approximate under Subsection
548.03.b.ii.(2)(b) above,
the state or states in which the service is received. In these cases, the
taxpayer may, in lieu of the rule stated at Subsection
548.03.b.ii.(2)(c) above,
apply the safe harbor stated in this subpart. Under this safe harbor, a
taxpayer may assign its receipts from sales to a particular customer based upon
the customer's billing address in a taxable year in which the taxpayer (1)
engages in substantially similar service transactions with more than two
hundred fifty (250) customers, whether business or individual, and (2) does not
derive more than five percent (5%) of its receipts from sales of all services
from that customer. This safe harbor applies only for purposes of services
delivered by electronic transmission to a business customer, and not otherwise.
(4-6-23)
(e) Related Party
Transactions. In the case of a sale of a service by electronic transmission to
a business customer that is a related party, the taxpayer may not use the
secondary rule of reasonable approximation in Subsection
548.03.b.ii.(2)(c) above,
but may use the rule of reasonable approximation in Subsection
548.03.b.ii.(2)(b) above,
and the safe harbor in Subsection
548.03.b.ii.(2)(d) above,
provided that the Tax Commission may aggregate sales to related parties in
determining whether the sales exceed five percent (5%) of receipts from sales
of all services under that safe harbor provision if necessary or appropriate to
prevent distortion. (4-6-23)
iii. Services Delivered Electronically
Through or on Behalf of an Individual or Business Customer. A service delivered
electronically "on behalf of' the customer is one in which a customer contracts
for a service to be delivered electronically but one or more third parties,
rather than the customer, is the recipient of the service, such as the direct
or indirect delivery of advertising on behalf of a customer to the customer's
intended audience. A service delivered electronically "through" a customer to
third-party recipients is a service that is delivered electronically to a
customer for purposes of resale and subsequent electronic delivery in
substantially identical form to end users or other third-party recipients.
(4-6-23)
(1) Rule of Determination. In the
case of the delivery of a service by electronic transmission, where the service
is delivered electronically to end users or other third-party recipients
through or on behalf of the customer, the service is delivered in this state if
and to the extent that the end users or other third-party recipients are in
this state. For example, in the case of the direct or indirect delivery of
advertising on behalf of a customer to the customer's intended audience by
electronic means, the service is delivered in this state to the extent that the
audience for the advertising is in this state. In the case of the delivery of a
service to a customer that acts as an intermediary in reselling the service in
substantially identical form to third-party recipients, the service is
delivered in this state to the extent that the end users or other third-party
recipients receive the services in this state. The rules in this part
(548.03.b.iii.(1)) apply whether the taxpayer's customer is an individual
customer or a business customer and whether the end users or other third-party
recipients to which the services are delivered through or on behalf of the
customer are individuals or businesses. (4-6-23)
(2) Rule of Reasonable Approximation. If the
taxpayer cannot determine the state or states where the services are actually
delivered to the end users or other third-party recipients either through or on
behalf of the customer, but has sufficient information regarding the place of
delivery from which it can reasonably approximate the state or states where the
services are delivered, it shall reasonably approximate the state or states.
(4-6-23)
(3) Select Secondary Rules
of Reasonable Approximation. (4-6-23)
(a) If a
taxpayer's service is the direct or indirect electronic delivery of advertising
on behalf of its customer to the customer's intended audience, and if the
taxpayer lacks sufficient information regarding the location of the audience
from which it can determine or reasonably approximate that location, the
taxpayer shall reasonably approximate the audience in a state for the
advertising using the following secondary rules of reasonable approximation. If
a taxpayer is delivering advertising directly or indirectly to a known list of
subscribers, the taxpayer shall reasonably approximate the audience for
advertising in a state using a percentage that reflects the ratio of the
state's subscribers in the specific geographic area in which the advertising is
delivered relative to the total subscribers in that area. For a taxpayer with
less information about its audience, the taxpayer shall reasonably approximate
the audience in a state using the percentage that reflects the ratio of the
state's population in the specific geographic area in which the advertising is
delivered relative to the total population in that area. (4-6-23)
(b) If a taxpayer's service is the delivery
of a service to a customer that then acts as the taxpayer's intermediary in
reselling that service to end users or other third party recipients, if the
taxpayer lacks sufficient information regarding the location of the end users
or other third party recipients from which it can determine or reasonably
approximate that location, the taxpayer shall reasonably approximate the extent
to which the service is received in a state by using the percentage that
reflects the ratio of the state's population in the specific geographic area in
which the taxpayer's intermediary resells the services, relative to the total
population in that area. (4-6-23)
(c) When using the secondary reasonable
approximation methods provided above, the relevant specific geographic area [of
delivery] include only the areas where the service was substantially and
materially delivered or resold. Unless the taxpayer demonstrates the contrary,
it will be presumed that the area where the service was substantially and
materially delivered or resold does not include areas outside the United
States. (4-6-23)
04.
Professional Services.
(4-6-23)
a. In General . Except as otherwise
provided in this Subsection
548.04, professional services
are services that require specialized knowledge and in some cases require a
professional certification, license or degree. These services include the
performance of technical services that require the application of specialized
knowledge. Professional services include, without limitation, management
services, bank and financial services, financial custodial services, investment
and brokerage services, fiduciary services, tax preparation, payroll and
accounting services, lending services, credit card services (including credit
card processing services), data processing services, legal services, consulting
services, video production services, graphic and other design services,
engineering services, and architectural services. (4-6-23)
b. Overlap with Other Categories of Services.
(4-6-23)
i. Certain services that fall within
the definition of "professional services" set forth in this Subsection
548.04 are nevertheless treated
as "in-person services" within the meaning of subsection
548.02 above, and are assigned
under the rules of that subsection. Specifically, professional services that
are physically provided in person by the taxpayer such as carpentry, certain
medical and dental services or child care services, where the customer or the
customer's real or tangible property upon which the services are provided is in
the same location as the service provider at the time the services are
performed, are "in-person services" and are assigned as such, notwithstanding
that they may also be considered to be "professional services." However,
professional services where the service is of an intellectual or intangible
nature, such as legal, accounting, financial and consulting services, are
assigned as professional services under the rules of this Subsection
548.04, notwithstanding the fact
that these services may involve some amount of in-person contact.
(4-6-23)
ii. Professional services
may in some cases include the transmission of one (1) or more documents or
other communications by mail or by electronic means. In some cases, all or most
communications between the service provider and the service recipient may be by
mail or by electronic means. However, in these cases, despite this
transmission, the assignment rules that apply are those set forth in this
Subsection (548.04), and not those set forth in subsection
03 above, pertaining to services
delivered to a customer or through or on behalf of a customer.
(4-6-23)
c. Assignment of
Receipts. In the case of a professional service, it is generally possible to
characterize the location of delivery in multiple ways by emphasizing different
elements of the service provided, no one of which will consistently represent
the market for the services. Therefore, the location of delivery in the case of
professional services is not susceptible to a general rule of determination,
and must be reasonably approximated. The assignment of receipts from a sale of
a professional service depends in many cases upon whether the customer is an
individual or business customer. In any instance in which the taxpayer, acting
in good faith, cannot reasonably determine whether the customer is an
individual or business customer, the taxpayer shall treat the customer as a
business customer. For purposes of assigning the receipts from a sale of a
professional service, a taxpayer's customer is the person that contracts for
the service, irrespective of whether another person pays for or also benefits
from the taxpayer's services. (4-6-23)
i.
General Rule. Receipts from sales of professional services other than those
services described in Subparagraph 04.c.ii. below (architectural and
engineering services), subparagraph 04.c.iii. below (services provided by a
financial institution) and Subparagraph 548.04.c.iv. below (transactions with
related parties) are assigned in accordance with this Subparagraph
(548.04.c.i.). (4-6-23)
(1) Professional
Services Delivered to Individual Customers. Except as otherwise provided in
this Subsection 548.04
(see in particular Subparagraph 548.04.c.iv.), in any instance in which the
service provided is a professional service and the taxpayer's customer is an
individual customer, the state or states in which the service is delivered must
be reasonably approximated as set forth in part 548.04.c.i.(1) of this rule. In
particular, the taxpayer shall assign the receipts from a sale to the
customer's state of primary residence, or, if the taxpayer cannot reasonably
identify the customer's state of primary residence, to the state of the
customer's billing address; provided, however, in any instance in which the
taxpayer derives more than five percent (5%) of its receipts from sales of all
services from an individual customer, the taxpayer shall identify the
customer's state of primary residence and assign the receipts from the service
or services provided to that customer to that state. (4-6-23)
(2) Professional Services Delivered to
Business Customers. Except as otherwise provided in this Subsection
548.04, in any instance in which
the service provided is a professional service and the taxpayer's customer is a
business customer, the state or states in which the service is delivered must
be reasonably approximated as set forth in this section. In particular, unless
the taxpayer may use the safe harbor set forth at part 548.04.c.i.(3) below,
the taxpayer shall assign the receipts from the sale as follows: first, by
assigning the receipts to the state where the contract of sale is principally
managed by the customer; second, if the place of customer management is not
reasonably determinable, to the customer's place of order; and third, if the
customer place of order is not reasonably determinable, to the customer's
billing address; provided, however, in any instance in which the taxpayer
derives more than five percent (5%) of its receipts from sales of all services
from a customer, the taxpayer is required to identify the state in which the
contract of sale is principally managed by the customer. (4-6-23)
(3) Safe Harbor; Large Volume of
Transactions. Notwithstanding the rules set forth in parts 548.04.c.i.(1) and
(2) above, a taxpayer may assign its receipts from sales to a particular
customer based on the customer's billing address in any taxable year in which
the taxpayer (1) engages in substantially similar service transactions with
more than two hundred fifty (250) customers, whether individual or business,
and (2) does not derive more than five percent (5%) of its receipts from sales
of all services from that customer. This safe harbor applies only for purposes
of this Subparagraph (548.04.c.i., Professional Services General Rule) and not
otherwise. (4-6-23)
ii.
Architectural and Engineering Services with respect to Real or Tangible
Personal Property. Architectural and engineering services with respect to real
or tangible personal property are professional services within the meaning of
this Subsection 548.04.
However, unlike in the case of the general rule that applies to professional
services, (1) the receipts from a sale of an architectural service are assigned
to a state or states if and to the extent that the services are with respect to
real estate improvements located, or expected to be located, in the state or
states; and (2) the receipts from a sale of an engineering service are assigned
to a state or states if and to the extent that the services are with respect to
tangible or real property located in the state or states, including real estate
improvements located in, or expected to be located in, the state or states.
These rules apply whether or not the customer is an individual or business
customer. In any instance in which architectural or engineering services are
not described in this Subparagraph (548.04.c.ii.), the receipts from a sale of
these services must be assigned under the general rule for professional
services. See Subparagraph 548.04.c.i. above. (4-6-23)
iii. Services Provided by a Financial
Institution. The apportionment rules that apply to financial institutions are
set forth in Rule 582. Rule
582 includes specific rules to
determine a financial institution's sales factor. However, the Financial
Institutions Rule also provides that receipts from sales, other than sales of
tangible personal property, including service transactions, that are not
otherwise apportioned under the Financial Institutions Rule [see section
3(o) of the 1995
MTC version of the regs or section
3(n) of the 1994
version], are to be assigned pursuant to Section
63-3027, Idaho Code, and these
rules. In any instance in which a financial institution performs services that
are to be assigned pursuant to Section
63-3027, Idaho Code. and these
rules including, for example, financial custodial services, those services are
considered professional services within the meaning of this Subsection (548.04,
and are assigned according to the general rule for professional service
transactions as set forth at Subparagraph 548.04.c.i. above. (4-6-23)
iv. Related Party Transactions. In any
instance in which the professional service is sold to a related party, rather
than applying the rule for professional services delivered to business
customers in part 548.04.c.i.(2) above, the state or states to which the
service is assigned is the place of receipt by the related party as reasonably
approximated using the following hierarchy:
(1) if the service primarily relates to
specific operations or activities of a related party conducted in one or more
locations, then to the state or states in which those operations or activities
are conducted in proportion to the related party's payroll at the locations to
which the service relates in the state or states; or
(2) if the service does not relate primarily
to operations or activities of a related party conducted in particular
locations, but instead relates to the operations of the related party
generally, then to the state or states in which the related party has
employees, in proportion to the related party's payroll in those states. The
taxpayer may use the safe harbor provided by part 548.04.c.i.
(3) provided that Tax Commission may
aggregate the receipts from sales to related parties in applying the five
percent (5%) rule if necessary or appropriate to avoid distortion.
(4-6-23)
05.
Examples. Available at
Income Tax Rules Examples. (4-6-23)
Notes
State regulations are updated quarterly; we currently have two versions available. Below is a comparison between our most recent version and the prior quarterly release. More comparison features will be added as we have more versions to compare.
No prior version found.