Tax Alert

Pennsylvania Joins Other States in Taxing the Cloud

(June 12, 2012)

On May 31, the Pennsylvania Department of Revenue issued a new letter ruling (Sales and Tax No. SUT-12-001) indicating that a Pennsylvania user accessing cloud software over the Internet is subject to sales or use tax. With the ruling, Pennsylvania joins 18 other states that in some manner seek to impose sales tax on remotely accessed software.

The ruling concludes that accessing “canned software” on remote servers is subject to sales or use tax if the user is based in Pennsylvania, regardless of where the software is hosted. The department’s view is that using remotely hosted software – cloud software – from a location in Pennsylvania constitutes the purchase of tangible personal property in the state.

The new ruling appears to be a change from a 2010 ruling that also addressed the taxation of software (Sales and Tax No. SUT-10-005). In the 2010 ruling, the Pennsylvania Department of Revenue concluded, “…access to software solely through the Internet is not a taxable transfer of software unless the server or data center resides in Pennsylvania.” The 2010 ruling is no longer available on the Department of Revenue’s website. At this time, it is unclear how and when taxpayers will need to begin paying sales or use tax on these software transactions as a result of Pennsylvania’s apparent policy change.

A copy of the new ruling can be found online.

For More Information
Will Ault

Chris Hopkins

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Michael A. Hollowell
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