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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).

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Steven Dunston
Avalara Author
Steven Dunston
Steven Dunston
Avalara Author Steven Dunston
Steven Dunston is a marketing technologist with experience as a web developer, SEO specialist and creative director. Steven is manager of the Marketing Technology Group at Avalara.