We provide here a written summary of answers provided by the Department of Revenue to the committee at periodic question and answer sessions. These documents are classified as Revenue information issued for informational purposes only for the convenience of PICPA members. Pursuant to 61 Pa. Code Section 3.4, these documents should not be relied upon for any purpose or used in tax appeals. Taxpayers requiring a binding opinion on a specific fact situation may request a written letter ruling under 61 Pa. Code Section 3.3.
Q&A with the Pennsylvania Department of Revenue
Under what circumstances is web-based service taxable?
PA Ruling SUT 10-005 provides in part: “A web-based service that allows remote access to a computer is not a taxable service if access to the software is solely through the Internet and the server or data center is not is not located in Pennsylvania.”
The facts state that: “Other than an applet necessary to access the service, the service does not entail the transfer of any Taxpayer [i.e., the remote access service provider] software to the subscriber and does not allow subscribers to access the Taxpayer software code or manipulate the software in any way. Rather, the service is provided through the Taxpayer’s own data centers on its proprietary equipment and software, which is at all times owned by and under the control of the Taxpayer.”
Under which authority would this web-based service be taxable, assuming the server or data center is located in Pennsylvania considering, according to the stated facts, there is no transfer of ownership or rights to the operating software from the Taxpayer to the subscriber (“which is at all times owned by and under the control of the Taxpayer”?
The Department’s policy is that the Taxpayer’s providing of access to canned software is a nontaxable computer service. If the server is located in Pennsylvania, then the
Taxpayer is required to pay sales or use tax on the Taxpayer’s purchase of the canned software placed on a server located in Pennsylvania. The access to the Taxpayer’s software is a nontaxable service regardless of the location of the server. PA Ruling SUT 10-005 will be reworded and reissued.
This also means the a business purchasing canned software which on placed on server located in Pennsylvania is required to pay sales or use tax on the entire purchase price of such software even though some or most of the users are located outside of Pennsylvania.