Summary: This blog post explores the sales tax regulations in Pennsylvania for SaaS, digital products, and cloud-based services, providing insights into tax rates, exemptions, and the impact on businesses operating in the state.
Pennsylvania requires sales tax on Software-as-a-Service.
Why does Pennsylvania require sales tax on Software-as-a-Service (SaaS)?
Pennsylvania states, “In light of recent case law and technological advances, the Department concludes that because computer software is tangible personal property, electronically accessing taxable software is taxable.” Pennsylvania further states that software is only taxable when the users are based in Pennsylvania, regardless of if the server is located within the state or not. If a portion of users are located within Pennsylvania, and a portion of users are located outside of Pennsylvania, an exemption may apply for the users who are located outside of Pennsylvania.
Is SaaS considered tangible personal property in Pennsylvania?
Saas is considered tangible personal property in Pennsylvania.
What is the SaaS sales taxes in Pennsylvania?
The Pennsylvania sales tax rate is 6 percent. By law, a 1 percent local tax is added to purchases made in Allegheny County, and 2 percent local tax is added to purchases made in Philadelphi
Where can you go to learn more about why Pennsylvania requires sales tax on Software-as-a-Service (SaaS)?
Pennsylvania Sales and Tax No. SUT-12-001 clarifies that cloud computing services are subject to sales and use tax.
Does Pennsylvania require sales tax on the sale of Downloadable Prewritten Software?
Pennsylvania requires sales tax on downloadable prewritten software.
Why does Pennsylvania collect sales tax on Downloadable Prewritten Software?
Pennsylvania requires sales tax on prewritten computer software because it is included in its definition of taxable tangible personal property. Pennsylvania goes into more detail saying that prewritten software is taxable regardless of “whether electronically or digitally delivered, streamed or accessed and whether purchased singly, by subscription or in any other manner, including maintenance[,] and updates [and support].” Pennsylvania does clarify that help desk or customer service charges that are separately stated on an invoice are not subject to sales tax if the charge occurred after Oct. 30, 2017.
Where can you go to learn more about why Pennsylvania sales tax laws apply to Downloadable Prewritten Software?
2017 Act 43 7201(m)(2)(ix) specifies that canned software is considered tangible personal property in Pennsylvania.
Does Pennsylvania require sales tax on the sale of Downloadable Custom Software?
Pennsylvania does not require sales tax on downloadable custom software.
Why does Pennsylvania not require sales tax on Downloadable Custom Software?
Pennsylvania does not require sales tax on “custom software” and defines custom software as “computer software designed, created and developed for and to the specifications of an original purchaser.” Pay special attention to the word “original purchaser” which Pennsylvania further defines as “the first person for whom the custom software was designed, created and developed, and to whom it was transferred in a sale at retail”.
Where can you go to learn more about why Pennsylvania does not require sales tax on Downloadable Custom Software?
Penn. Code § 60.19. Computer software, hardware, and related transactions defines custom computer software and specifies that it is not subject to sales and use tax.
Does Pennsylvania require sales tax on the sale of Digital Products?
Pennsylvania does charge sales tax on digital products such as videos, photographs, e-books, apps, games, music.
Why does Pennsylvania require sales tax on Digital Products?
Effective August 1st, 2016, Pennsylvania charges sales tax on digital and/or electronic content (including updates and support) for anything that would be considered taxable in physical form, but is delivered electronically, digitally, streamed, or accessed, and whether purchased singly, by a subscription, or in another manner. Pennsylvania specifically mentions that e-books, videos, photographs, apps, games, and music (or other audio content) are all considered taxable digital content. If a product would be tax-exempt in physical form, it would likely also be exempt in digital form. This is important because certain products, like Newspapers or Textbooks, are not considered taxable in the state.
Where can you go to learn more about why Pennsylvania requires sales tax on Digital Products?
Pa. Stat. Ann. 72 §7201(m)(2) defines what is considere taxable electronically delivered products. Pennsylvania Sales Tax Bulletin 16-001 discusses expanding the tax base to include digital products. Pennsylvania Rev-717, updated November 2022, outlines what sort of products are considered taxable or exempt in the state, which is important to consider because some digital products may be exempt if they would also be exempt in physical form.
Does Pennsylvania require sales tax on the sale of Non-Fungible Tokens (NFTs)?
Pennsylvania has provided limited guidance that Non-Fungible Tokens (NFTs) are subject to sales tax.
Why guidance has Pennsylvania provided regarding whether it charges sales tax on Non-Fungible Tokens (NFTs)?
Pennsylvania has provided limited guidance that NFTs are subject to sales tax. This guidance is found on page 12 of Pennsylvania Rev-717. It is hypothetically possible that if the NFT is storing value of something that is not taxable in the state (such as a Textbook being sold by a school or authorized bookstore) that the NFT would not be subject to sales tax.
Are cloud-based services taxable in Pennsylvania?
Pennsylvania requires sales tax on Infrastructure-as-a-service (IaaS) if the user is based in the state.
What is Infrastructure as a Service (IAAS)?
IaaS, or infrastructure as a service, is a cloud based software that gives users access to processing, storage, networks, and other computing resources so they may deploy and operate software, such as operating systems and applications. The consumer has control over the delivered apps, storage, and operating systems. The consumer does not have control over the underlying cloud computing infrastructure.
Why does Pennsylvania charge sales tax on Infrastructure-as-a-Service (IaaS)?
Pennsylvania has made it clear that cloud computing is subject to sales tax in the commonwealth. Specifically, the department stated “In light of recent case law and technological advances, the Department concludes that because computer software is tangible personal property, the charge for electronically accessing taxable software is taxable. In accessing taxable software the user is exercising a license to use the software, as well as control or power over the software, at the user’s location.”
More information can be found in Pennsylvania Sales And Use Tax Ruling, No. SUT-12-001, 05/31/2012.
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