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
Scenario: An IT provider bills a client via a flat, lump-sum, recurring monthly charge, of which the largest portion relates to the value of the services provided by the vendor’s employees
A vendor provides information technology services to a client. This includes utilizing software, which is electronically transferred to the client, and support services provided by the vendor’s employees. The support services include monitoring the software’s findings on a daily basis and providing assistance to ensure the client’s operating system is operating as intended.
The IT provider bills the client via a flat, lump-sum, recurring monthly charge, of which the largest portion relates to the value of the services provided by the vendor’s employees (in relation to the charge for the software provided). Under Act 84 of 2016, the transfer of digital products are subject to Pennsylvania sales and use tax.
Does this transaction fall within the scope of this new law or does it maintain its identity as a professional service which simply utilizes software to provide its services?
As there is a single charge for this transaction, the sale is subject to tax as part of sale involves the taxable transfer of canned software. More detailed facts are necessary to provide a definitive answer if the charges are unbundled.