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On December 1, 2011, the Pennsylvania Department of Revenue issued a bulletin outlining remote seller activities that constitute nexus with the Commonwealth of Pennsylvania. Per the bulletin, if a remote seller has a contractual relationship with an entity or individual physically located in Pennsylvania whose website has a link that encourages purchasers to place orders with the remote seller, and the in-state entity or individual receives consideration for the relationship, the remote seller has nexus in Pennsylvania. Regularly soliciting orders from Pennsylvania customers via the website of an entity or individual physically located in Pennsylvania, such as via click-through technology also creates nexus. This is commonly referred to as “click-through” nexus. 


The bulletin also states that the following activities create nexus in Pennsylvania for remote sellers: 


  • Utilizing affiliates, agents and/or independent contractors located in Pennsylvania who provide repair, delivery or other services relating to tangible personal property sold by the remote seller to Pennsylvania customers.
  • Utilizing a remote seller’s affiliates, agents and/or independent contractors to provide services in Pennsylvania that benefit, support and/or complement the remote seller’s business activity.
  • Storing its property or the property of a representative at a distribution or fulfillment center located within Pennsylvania, regardless if the center also stores property of third parties that is distributed from the same location.


The bulletin states that the activities above constitute maintaining a place of business in Pennsylvania for remote sellers, thus creating nexus for them in the state and requiring them to collect sales tax on sales within Pennsylvania. The Department will enforce the provisions accordingly. (Pennsylvania Sales and Use Tax Bulletin 2011-01, issued December 1, 2011)


A Pennsylvania court has reaffirmed its decision that a provider’s sales of network infrastructure services to retail Internet service providers (ISPs) constitute Internet access services and are therefore tax-exempt. The court had previously held that the provider’s facility was a Point-of-Presence (PoP) that enabled ISPs to access the Internet, and its services were Internet access services exempt from sales and use tax under the Federal Internet Tax Freedom Act. The Commonwealth argued that the provider’s services constituted a technological advancement to taxable telecommunications services. The Commonwealth also argued that the provider was not providing internet access services because it always delivered end users to an ISP homepage and that the ISP, not the taxpayer, enabled end users to connect to the Internet. The court reaffirmed its prior finding that the technological differences between taxable telecommunications services and the provider’s network infrastructure services related to what services were provided, not how the services were provided. The court also reaffirmed that the provider’s PoP provided the access point for ISP end users to establish an Internet connection. As a result, the provider’s services remain exempt from Pennsylvania sales and use tax. (Level 3 Communications, LLC v. Commonwealth, 166 F.R. 2007 (Pa. Cmwlth. Dec. 8, 2016))


The Pennsylvania Department of Revenue has issued a legal letter ruling stating that for purposes of Pennsylvania sales tax, the vehicle value paid to car owners under the buyback or restitution provisions of a motor vehicle class action settlement agreement cannot be deducted from the purchase price of a new vehicle.Under the buyback program in question, the vehicle manufacturer will purchase an eligible vehicle from the owner and pay the vehicle value, which the owner may or may not choose to apply to the purchase of a new vehicle. Per Pennsylvania tax law, the purchase price of a new vehicle may be deducted by the amount of a trade-in allowed on the purchase if the trade-in occurs at the same time of the sale. Unlike a trade-in with a car dealership, the vehicle is not purchased by the dealership, but rather by the manufacturer under the buyback program. The buyback is considered a separate or independent sale rather than a trade-in. As a result, the purchase price of a new vehicle cannot be reduced by the vehicle value, even if it is immediately applied to the purchase of the new vehicle. Similarly, an owner restitution payment is not considered a trade-in. 


Under Pennsylvania's Automobile Lemon Law, if a manufacturer fails to repair or correct a nonconformity after a reasonable number of attempts, a purchaser may request the manufacturer either to replace the vehicle with a comparable motor vehicle of equal value or to refund the vehicle's full purchase price including the Pennsylvania sales tax. The manufacturer can then file for a refund of the sales tax paid to the customer as part of the refund. Under the buyback program, the manufacturer agrees to purchase the vehicle from owners and to pay the vehicle value, not to replace the vehicle. The vehicle value is not the purchase price of the vehicle that the owner paid. The same goes for an owner restitution payment. As a result, neither the buyback or restitution payment are considered a vehicle replacement or refund under Pennsylvania's Automobile Lemon Law. (Legal Letter Ruling No. SUT-16-003, Pennsylvania Department of Revenue, December 5, 2016)


On August 25, 2016, House Judiciary Committee Chairman Robert Goodlatte released a discussion draft of the Online Sales Simplification Act of 2016. The legislation would implement a “hybrid origin” approach for remote sales. Under the legislation, states could impose sales tax on remote sales if the origin state participates in a clearinghouse.In this case, the tax is based on the origin state’s baseand taxability rules. The rate would be the origin state rate, unless the destination state participates. In that case, the rate used would be a single state-wide rate determined by each participating destination state. A remote seller would only remit sales tax to its origin state for all remote sales. Only the origin state would be able to audit a seller for remote sales. Non-participating states would not be able to receive distributions from the clearinghouse. Sellers would be required to provide reporting for remotes sales into participating states to the Clearinghouse so it can distribute the tax to the destination state. We will continue to monitor activity and update when the official bill is introduced.  (Discussion draft of Online Sales Simplification Act of 2016)


Pennsylvania has enacted legislation subjecting digital goods to sales and use tax. Effective August 1, 2016, sales and use tax is imposed on downloaded videos, photographs, books, any otherwise taxable printed matter, apps, games, music, any other audio (including satellite radio service), canned software, and any other otherwise taxable tangible personal property electronically or digitally delivered, streamed, or accessed. These items are subject to sales and use tax as tangible personal property and are considered tangible personal property whether they are electronically or digitally delivered, streamed, or accessed and whether they are purchased singly, by subscription, or in any other manner, including maintenance, updates, and support.(Act 84 (H.B. 1198), Laws 2016)



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