OUR THOUGHTS ON:

UPDATE: Taxability of Software Related Services in Pennsylvania

Professional Services|State and Local Tax|Technology

By Matthew Dodge

Update:

Please be advised that the Pennsylvania Department of Revenue has taken down the letter ruling referred to below that addressed the taxability of support services related to canned computer software.

Many professional groups and organizations responded to and countered the conclusions reached by the Department in the letter ruling dated February 9, 2017.

No further guidance or information has been provided by the Department while they appear to be further considering the conclusions reached and set forth in the letter ruling.

We will continue to update you on this matter as developments warrant.

The Pennsylvania Department of Revenue (the Department) issued a letter ruling on February 9, 2017 addressing the taxability of support services related to canned computer software.  The Department’s position will directly impact the taxability of certain transactions between vendors of canned software and their customers.  In the letter ruling, the Department concluded that under Act 84 of 2016, which expanded the definition of tangible personal property, support services related to canned computer software are subject to tax. 

Act 84 of 2016

Act 84 of 2016 states that tangible personal property includes canned software obtained by any means as well as maintenance, updates and support.  The Department’s prior position on computer software and related services (Policy Statement 60.19) treated canned software maintenance and updates as taxable, but consultation, support and/or training services were nontaxable when separately stated on an invoice.  In the Department’s current interpretation, any vendor that provides support to software, and has access to the software, is providing taxable support services.  Examples given by the Department in the letter ruling include: support via remote access; telephone support, consulting and software training.

The Department’s position on the taxability of support services represents a significant change from the past that will impact many taxpayers.  Vendors of canned software may have to update their billing systems to account for the taxability changes.  Purchasers of canned software may need to review recent purchases to determine if they have additional use tax liability from purchases of support services.

The letter ruling provides examples and answers to specific questions related to support services for canned software.  The full text of the letter ruling can be found by clicking here.  

Please contact us with questions regarding Legal Letter Ruling No. SUT-17-001 and visit the Our Thoughts On blog for more articles on State and Local Tax

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