Online Research Services Taxable in Pennsylvania, More Next?

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By Leslie A. Pappas

Information retrieval products are considered tangible personal property in Pennsylvania and therefore subject to the state’s 6 percent sales and use tax, a new letter ruling from the Department of Revenue says.

Letter Ruling No. SUT-17-002, posted on the department’s website Aug. 3, is the latest guidance from the department on how it plans to interpret Act 84 of 2016, which took effect Aug. 1, 2016. The law expanded the statutory definition of “tangible personal property” to include digital versions of books, games, music, audio, video, and other items. Practitioners said the language of the letter ruling could potentially open up more services to tax.

“Based on the reasoning applied in SUT-17-002, the Department could treat other services as taxable sales of software,” Lee A. Zoeller, Robert E. Weyman, Christine M. Hanhausen and Michael I. Lurie of Reed Smith LLP’s State Tax Group in Philadelphia wrote in an alert Aug. 1.

The ruling, dated May 17, responds to a taxpayer who offers subscription-based online research services for professionals in accounting, tax, finance, law, and other industries. The service allows subscribers to search and retrieve court opinions, legal filings, government documents, full-text patents, and other documents, according to the letter ruling.

The products constitute tangible personal property in that the transactions “are comprised of both (i) a license to electronically access and use canned computer software and (ii) the right to electronically access tangible personal property,” the letter ruling concludes. “The transactions are therefore subject to the imposition of Pennsylvania Sales and Use Tax.”

Back to 2012

Pennsylvania hasn’t imposed a sales tax on information retrieval services for 20 years, Zoeller and his colleagues wrote in the Reed Smith alert. More “troubling” is the reasoning behind the letter ruling, which implies that some services could be subject to tax even before Act 84 of 2016 took effect. “SUT-17-002 would seem to open the possibility that electronic access to information services could be subject to sales and use tax, and open to assessment, back to 2012,” Zoeller and his colleagues wrote.

The reasoning in SUT-17-002 could also make other services taxable, including web-accessed information services, certain web design services, and software as a service transactions, the alert said.

“The Department could expand the reasoning in SUT-17-002 to argue that all sales of electronic information retrieval services used in Pennsylvania since 2012 are subject to sales tax as remote-access software,” the Reed Smith alert says. “In our experience, auditors are already assessing tax on purchases of services of this type, and the issuance of SUT-17-002 is likely to embolden auditors taking that approach.”

The letter ruling is the second from the department this year involving Act 84 and computer software. In February, the department issued a letter ruling (No. SUT-17-001) that seemed to indicate all training and consulting services related to canned computer software were taxable. The department pulled the letter after taxpayers protested, and released a revised version of the letter April 4 to clarify that most such services wouldn’t be subject to tax.

The content of Letter ruling SUT-17-002 is new and wasn’t part of previous letter rulings, Zoeller told Bloomberg BNA in an email Aug. 4.

To contact the reporter on this story: Leslie A. Pappas in Philadelphia at

To contact the editor responsible for this story: Jennifer McLoughlin at

For More Information

Text of the letter ruling is at

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