Pennsylvania Ruling on Software Tax

The Pennsylvania Department of Revenue ruled that cloud computing software is subject to Pennsylvania sales and use tax* when used by people in-state (SUT-12-001). 

As used in the ruling, cloud computing means products or services that ". . . use a server infrastructure and are accessed by end users using computer devices."

Taxability

Cloud computing is taxable in the following scenarios:

1. A business purchases and installs software on servers that its employees can access. The business pays for the service, and the employees use it free of charge in Pennsylvania.
2. A business installs software on servers that its customers access in Pennsylvania. The customers pay either a subscription fee, or pay on a per-use basis.

In the first case, the business must collect and remit sales tax. In the second case, the business must collect and remit use tax.

Exemptions

The Department specifies that "If the billing address for canned software accessed remotely is a Pennsylvania address, then the presumption is that all users are located in the Commonwealth." To contest this, the purchaser must complete an exemption certificate, and indicate the percentage of users located in Pennsylvania on page 2, line No. 7 (Rev-1220_fillin.pdf**).

Business may claim a retail exemption if tax will be collected on the use of cloud software in-state.

*To view the letter ruling, click on SUT-12-001.

** Scroll down to Rev-1220_fillin.pdf - Pennsylvania Exemption Certificate (REV-1220).