The House voted to exclude so-called cloud computing services delivered over the Internet from being charged a sales tax by the state.
The 65-2 vote on Monday sends the measure to the Senate.
The Idaho Technology Council, which represents technology businesses in the state, asked for the measure after the Idaho Tax Commission interpreted a 1993 state law as saying software is taxable property no matter how it is delivered.
In cloud computing, people or companies rent computing services or storage space over a network, rather than buy actual software.
House Majority Leader Mike Moyle of Star argued this change was necessary, to make sure Idaho didn't fall behind advancements in technology.
Only Democrats John Gannon of Boise and Shirley Ringo of Moscow voted against the bill.