In-State Remote Access Software Taxable in Pennsylvania

Charges for the use of canned computer software hosted on a server and accessed electronically by a taxpayer’s customers and employees are subject to Pennsylvania sales and use tax if the end user is located in-state. Computer software is tangible personal property; therefore a charge for electronically accessing the software is taxable. The user is exercising a license to use the software as well as control or power over the software at the user’s location. The taxpayer providing the “cloud computing” service is required to collect sales tax from a customer if the user is located in Pennsylvania. Additionally, software used by the taxpayer’s employees is subject to use tax if the employees are located in Pennsylvania. If the billing address for the software is in Pennsylvania, it is presumed that all users are in Pennsylvania, unless the purchaser provides an exemption certificate stating the percentage of users located outside of Pennsylvania. The charges are not subject to Pennsylvania sales tax if the user is located outside of Pennsylvania, even if the server hosting the software is located in Pennsylvania. The taxpayer can claim a resale exemption on the purchase of software to be located in Pennsylvania if tax will be collected on the use of the software in Pennsylvania. (Legal Letter Ruling No. SUT-12-001, Pennsylvania Department of Revenue, May 31, 2012)

Posted on June 22, 2012