Q&A with the Pennsylvania Department of Revenue

Recently, the DOR indicated that services like CCH, RIA, LEXIS, and Bloomberg constitute taxable sales of software and/or taxable sales of digital products. What is the basis for the DOR’s change of position?

Jan 22, 2018
Q:

In a 2015 PICPA Q&A, the DOR indicated that services provided by services like CCH, RIA, LEXIS and Bloomberg constituted nontaxable information retrieval services. Recently, the DOR has indicated that these services constituted taxable sales of software and/or taxable sales of digital products. What is the basis for the DOR’s change of position? In addition, please explain how an information retrieval service can also be a digital product.

A:

The Graham Packaging and Dechert decisions provided the legal authority for the Department to consider all digitally/electronically delivered software products, including those sold by CCH, RIA, LEXIS, and Bloomberg as taxable. See Graham Packaging Company L.P. vs. Commonwealth, 882 A.2d 1076 (Pa.Cmwlth. 2005); Dechert, LLP v. Commonwealth, 998 A.2d 575 (Pa. 2010). However the taxation of digitally/electronically delivered software products not specifically addressed by the court, was held in abeyance pending legislative direction.

The Department’s response to PICPA’s inquiry in 2015 reflects this position by characterizing sales made by CCH, RIA, LEXIS, and Bloomberg as “information retrieval services.” In 2016 through Act 84 the legislature amended and clarified the term “tangible personal property” to include “any other otherwise taxable printed matter” and “any other otherwise taxable tangible personal property electronically or digitally delivered, streamed or accessed.” Act 84 of 2016.

With the passage of Act 84 there is no distinction between a service providing “electronic” tangible personal property and a service providing “hard copy” tangible personal property. Given this legislative directive, the Department could no longer maintain the position reflected in its answer to PICPA’s question in 2015, and not apply the holdings in the Graham Packaging and Dechert decisions.

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These documents provide a summary of the answers provided by the Department of Revenue to the PICPA Committee on State Taxation at its annual question and answer session. 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 their specific fact situation may request a written letter ruling under 61 Pa. Code Section 3.3.