Idaho State Tax Commission, Docket No. 0-723-166-208

Petitioner, an Idaho software development partnership, claimed an Idaho research credit for a portfolio of internally developed and commercially sold software projects. The Audit Division's original Notice of Deficiency Determination allowed qualified research expenses for only one project — a 2017–2019 browser extension — and disallowed credit for the rest. Petitioner protested as to the remaining projects.

Projects Found to Qualify on Appeal

On review, the Tax Commission found that a follow-on 2020 version of the browser extension also qualified, along with several system-integration 'interface' projects — including an invoicing integration with Sage Financials, a Salesforce verifications interface, a Salesforce invoicing integration, and a broader web application — where Petitioner had to resolve genuine uncertainty about how to reliably connect and synchronize data between third-party platforms with incompatible data models and APIs. The Commission also found that software developed for commercial sale, principally the web application and most of a volunteer management system, met the ordinary qualification standard.

For software developed primarily for Petitioner's own internal use, the Commission applied the heightened 'high threshold of innovation' test under Treas. Reg. section 1.41-4(c)(6) and found it satisfied for the qualifying internal-use components, based on evidence that the software provided a significant and economically meaningful improvement over existing capabilities and involved significant economic risk given the resources committed and the uncertainty of success.

Projects That Failed for Lack of Documentation

Website development work and a separate 3D modeling project were denied credit. The Commission found no documentation of a process of experimentation for either — the website relied on standard commercially available tools and templates, and the 3D modeling work was not shown to involve evaluating technical alternatives rather than applying known techniques.

The Commission therefore modified the Notice of Deficiency Determination, expanding the allowed qualified research expenses beyond the single project the Audit Division had originally accepted.

Significance: This is among the most substantive Idaho research credit decisions reviewed, applying the internal-use software 'high threshold of innovation' test in Petitioner's favor for several projects while still holding the line on documentation for others — a rare partial taxpayer win in an otherwise largely denial-heavy body of Idaho decisions.