Software Support Tax Ruling Scaled Back in Pennsylvania

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Leslie A. Pappas

The Pennsylvania Department of Revenue has revised a controversial letter ruling on computer software support, dialing back guidance in an earlier version that implied training and consulting services could be taxed.

Initially released Feb. 9, the guidance reveals the department’s interpretation of Act 84 of 2016, which made digital downloads subject to the state’s 6 percent sales and use tax. In its first iteration, the letter ruling applied sales and use tax to “support services” for canned computer software. The department pulled the letter from its website March 10 after tax attorneys and accountants called it a “significant overreach” that would have taxed virtually all software support services in the state.

Pennsylvania Sales and Use Tax Letter No. SUT-17-001, revised April 4, clarifies that training or consulting services related to canned computer software aren’t taxable, unless the activity clearly falls within the department’s definition of software “support.” The revised version eliminates the word “services” when referring to computer software support and eliminates all references to “training” or “consulting” in the definition.

“I think that what they have done is narrowed this ruling to what they initially intended it to be,” Rob Weyman, counsel in the state tax group at Reed Smith LLP in Philadelphia, told Bloomberg BNA April 10.

‘Problematic Language’

While the revised version is a “big improvement” that is “less ambiguous” than the original, the department continues to assert that technical support, such as phone support from an IT help desk, is taxable, Weyman said.

“We would say that that is beyond the statutory language,” said Weyman, adding that there could be “refund opportunities” if a taxpayer decides to challenge the department’s interpretation.

The revised version of the letter “is much better and seems to be more reasonable in its application” than the earlier version, Paul Graney, a partner in the state and local tax practice for Marcum LLP in Boston, told Bloomberg BNA in an email.

However, the ruling still has some “problematic language” concerning consulting services that could leave taxability “open to interpretation by each auditor on a case by case basis,” Graney said.

The revised letter was posted on the department’s website April 7, DOR spokesman Kevin Hensil told Bloomberg BNA.

To contact the reporter on this story: Leslie A. Pappas in Philadelphia at LPappas@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

For More Information

Text of the revised letter ruling is at http://src.bna.com/nMT.

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