April 24, 2017

Pennsylvania's Revised Guidance on Taxability of Prewritten ("Canned") Computer Software Support

Contributor Zacarias Quezada, Staff Accountant, Tax & Business Services

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Pennsylvania's Revised Guidance on Taxability of Prewritten ("Canned") Computer Software Support State & Local Tax

The Pennsylvania Department of Revenue issued revised guidance on the extent to which “support services” associated with prewritten (“canned”) computer software may be taxed.

On February 9, 2017, the Pennsylvania Department of Revenue released guidance on the Department’s interpretation of Act 84 of 2016, which imposes a 6% sales and use tax on digital downloads-including support services associated with downloads. However, on April 4, 2017, the Department removed the letter from its website and issued Pennsylvania Sales and Use Tax Letter No. SUT-17-001. This revised guidance clarifies that training and consulting services related to canned computer software are not taxable unless the activity clearly falls within the Department’s definition of software “support.”

While the revised version is more narrowly tailored than its predecessor, ambiguities still exist. A prime example of such ambiguities is evidenced by the Pennsylvania Department of Revenue’s continued assertion that technical support (i.e., IT phone support) is taxable pursuant to the Act. The Pennsylvania Department of Revenue contends that technical support or assistance falls within the definition of “tangible personal property,” which includes maintenance, updates, and support. Therefore, even though the language of Letter No. SUT-17-001 seems to provide some clarity, doubt still exists concerning the taxability of consulting services, as the Pennsylvania Department of Revenue still reserves the right to characterize consulting services as support services.

Due to the broad interpretation of the term “support services,” the Pennsylvania Department of Revenue will likely continue to scrutinize support services associated with canned computer software, which will likely create additional taxable services for the unwary.

Please contact your dedicated Marcum professional to address any questions regarding this guidance or any other tax matter.