The maintenance agreement gives the customer a right to receive goods and services. While the revised version is more narrowly tailored than its predecessor, ambiguities still exist. Maintenance contracts for taxable computer software or taxable computer programs contract sold or renewed on october 1, 2009 and thereafter if the contract includes distinct and identifiable products andor services e. The term computer software maintenance contract means a contract that obligates a person to provide a customer with future patches, updates, upgrades, or repairs of computer software. While iowas sales tax generally applies to most transactions, certain items have special treatment in many states when it comes to sales taxes. The retail sale or use of canned software including updates transferred electronically is subject to pennsylvanias sales and use tax. Applications software programming services, custom computer.
The sale at retail or use of canned software, regardless of the method of delivery, including updates, enhancements and upgrades is subject to tax. Instead, states tax some kinds of software and exempt others, based on whether it is customized or offtheshelf and whether it is on cd or downloaded, all silly distinctions for tax purposes. Act 84 of 2016 support to canned computer software and other digital property. Recently, the pennsylvania department of revenue removed sales and use tax letter ruling no. Prewritten computer software, regardless of the method of delivery, is generally subject to use tax upon use in this state if washington retail sales tax was not previously paid. Remotely accessed computer software is not taxable, and digital subscriptions are not. This document provides information about sales and use tax exemptions effective january 1, 2010 pertaining to computer software.
However, use of prewritten computer software is not taxable, if it is provided free of charge, or if it is provided for temporary use in viewing information, or both. Generally, separately stated charges for maintenance of computer software are exempt. Whats new in 2018 we clarified when sellers are required to collect local sales taxes. For sales occurring on october 1, 2009 and thereafter. Georgia sales tax on software and maintenance programs.
Pennsylvania sales tax now applies to support, maintenance. This revised guidance clarifies that training and consulting services related to canned computer software are not taxable unless the activity clearly falls within the departments definition of software support. Charges for the use of canned computer software hosted on a server and accessed. Instate remote access software taxable in pennsylvania sales. Download pennsylvania defines taxable support to canned computer software and other digital property the revised ruling modified that interpretation and states that only activities that fall within the definition of support are subject to tax. The 45 states with sales taxes do the opposite, exempting many final sales and taxing many business purchases. Sut17001 act 84 of 2016 support to canned computer. Note that in the 1990s, pennsylvania taxed software support and computerrelated services by including those items in the statutory list of enumerated taxable services. The general position is that services to software are taxable, even if the underlying software itself is exempt from sales tax. A number of other sales tax changes are also included in. Sales of computer hardware, software or computer related services prior to march 6, 2009. Custom softwarecomputer software designed, created and developed for and to the specifications of an original purchaser. Ideally, all software purchases should be taxable to final users and exempt for business users. St 200306 definition of tangible personal property including prewritten computer software july 2, 2003 am.
Taa 15015 software upgrade florida sales tax attorney. Pennsylvania treats canned, software as taxable tangible personal property, regardless of the method of accessing it. This list compiles all saasrelated state sales tax laws at the time of this writing. Both software delivered electronically is not considered taxable, and the use of prewritten computer software in providing software programming services does not cause the programming services to become taxable unless tangible personal property is provided to. Sut17001, pennsylvania department of revenue, april 4, 2017.
No state or district, at least among those with an established sales tax, exempts all software sales, making tax compliance increasingly complex for growing software companies. A tax bulletin is an informational document designed to provide general guidance in simplified language on a topic of interest to taxpayers. Sales of custom software downloaded are exempt from the sales tax in pennsylvania. Sales and use tax treatment computer hardware, software.
Pennsylvania, like most states, requires time to catch up to trends in the economy, and the taxation of computer software and services is no different. Yes, the medium of transfer of the canned computer software or support is not. Based on this ruling, software providers and customers should clearly describe the services provided and distinguish services that are not related to the maintenance, update and support of taxable computer software. Pennsylvania sales tax now applies to support, maintenance and. As used in the ruling, cloud computing means products or services that. In addition, if pennsylvania sales tax is paid on the full purchase price of a taxable softwarerelated service, the purchaser may be eligible for a refund to the extent that the software is used by employees or thirdparty users located outside pennsylvania. Pennsylvania issues revised ruling on software support services. Canned computer software taxable regardless of delivery method labry welty dallas 214 9694842 the pennsylvania commonwealth court the court recently surprised the board of finance and revenue and taxpayers alike by holding that license renewals for canned software were subject to the pennsylvania sales tax regardless of the. This page describes the taxability of software and digital products in pennsylvania, including canned software delivered on tangible media, canned software downloaded, custom software delivered on tangible media, custom software. Sales of computer hardware, software or computer related services from march 6, 2009 through september 30, 2009. This being the case, however, so long as there is a separately stated charge on the dealers invoice for the modification or enhancement, the charge is will not subject to tax.
The department took the position that the charge for electronically accessing taxable software is taxable because computer software is tangible personal property, and the user is exercising a license to use the software within the meaning of 72 p. Sut17001, providing guidance on the taxability of support services to canned computer software pursuant to act 84 of 2016. Conclusion accessing taxable canned software is taxable when the user is located in pennsylvania. When taxable canned software is accessed remotely and sold to the. Original purchaserthe first person for whom the custom software was designed, created and developed, and to whom it was transferred in a sale at retail. See tsbm933s, state and local sales and compensating use taxes imposed on certain sales of computer software, for more information. What are the sales and use tax consequences when software as a. All of these items have been added to pennsylvanias definition of taxable tangible personal property.
Pennsylvania defines taxable support to canned computer. Of the halfdozen or so states that specifically tax information services, such as new jersey and new york, they have statutorily identified it. Pennsylvania sales tax now applies to support, maintenance and updates of canned computer software thursday, 08. Additionally, electronically delivered software that is used for business purposes is exempt from sales tax. Tax is due when the computer program, or a license to use the computer program, is transferred for consideration in texas, or stored, used, or consumed in texas, in electronic form or on physical media. Is support of canned computer software which is sold via tangible media also taxable. Are software and digital products taxable in pennsylvania. Kentucky clarifies taxability of prewritten computer software. Sales tax treatment of software is the subject of this weeks map.
Computer software department of taxation and finance. What you need to know about the taxability of saas in 9 eastern. Taxability of computer hardware and software and related fees and services dear. The department collects and enforces sales and use tax for a number of cities, counties and special districts, all of which levy tax on software in the same manner as the state sales tax. Prewritten computer software the sale, lease or license to use a canned or prewritten computer. Charges for the use of canned computer software hosted on a server and accessed electronically by a taxpayers customers and employees are subject to pennsylvania sales and use tax if the end user is located instate. While pennsylvanias sales tax generally applies to most transactions, certain items have special treatment in many states when it comes to sales taxes.
Under the pennsylvania tax reform code of 1971, a tax is imposed on the. Consumers of technology services listed below will face a new sales tax of up to. Instate remote access software taxable in pennsylvania. Common purchases of digital products that are taxable include, but are not.
The pennsylvania department of revenue dor released two separate. A the sale, lease, or license of a computer program is a sale of tangible personal property. Pennsylvania issues revised ruling on software support. This page describes the taxability of software and digital products in iowa, including canned software delivered on tangible media, canned software downloaded, custom software delivered on tangible media, custom software downloaded. However, this exemption does not apply to softwarerelated installation, maintenance, servicing, or repairs. You can read pennsylvanias economic nexus guidance for sellers here and you can read more about economic nexus in every state here. Pennsylvania removes provocative ruling on software. A summary of the tax treatment of sales of computer software and computer software maintenance contracts both prior to and on or after. The councils membership quickly responded to our rally cry against the tax.
Pennsylvania imposes sales tax on each transfer of. A canned software includes custom software that is transferred pursuant to a sale at retail to a person other than the original purchaser. The pennsylvania department of revenue ruled that cloud computing software is subject to pennsylvania sales and use tax when used by people instate sut12001. The ruling extensively stated that any support services provided to canned computer software are subject to the sales and use tax as services to tangible personal property. Sut12001 cloud computing issue what are the sales and use tax consequences of accessing taxable canned software on remote servers, also known as cloud computing. Pennsylvania governor signs law adding tax exclusion for. Computer software disks fall within the common, ordinary accepted meaning of the phrase tangible goods, wares, or merchandises found in the state statute. While pennsylvania s sales tax generally applies to most transactions, certain items have special treatment in many states when it comes to sales taxes. In the state of georgia, any rewritten computer software, whether it is modified to the specifications of a customer or not, is still deemed prewritten computer software.
The pennsylvania department of revenue dor released two separate letter rulings during 2017 that provide guidance on the sales and use tax treatment of information retrieval services and support services related to computer software. Pennsylvania tax developments perspectives reed smith llp. Pennsylvania issues revised ruling on sales tax treatment. Oklahoma tax commission tax policy and research division tony mastin, director march 24, 2000 phone 405 521.