US: Cloud Computing and Support Services Taxable in Pennsylvania

The Board of Finance and Revenue of the Commonwealth of Pennsylvania (Board of Finance and Revenue) issued a decision in the case initiated by One Market Data LLC as Petitioner. After checking all the Petitioner's claims and other facts, the Board of Finance and Revenue decided that Petitioner's activities are subject to sales tax in Pennsylvania.

Matter of the Case

The Petitioner is a software company that provides installation, setup, design, implementation, and training regarding canned computer software. Consumers buy the licenses for the software, and as part of the service, they receive supported services.

After conducting an audit between 2020 - 2022, the Department of Revenue (DOR) revoked the Petitioner's sales tax license due to violating sales tax laws. The DOR also issued a notice of penalties and interests the Petitioner must pay.

The Petitioner appealed against this decision to the Board of Appeals (BOA), stating that its services are non-taxable and that it did not provide any ‘Licensor Property’ as part of its support services. The BOA found reasons to reduce the part of the penalties while denying the rest of the appeal. The BOA stated that the Petitioner's services are taxable, so it decided to deny Petitioner's appeal. Furthermore, the BOA supported the decision to revoke the license due to sales tax owed to the DOR.

As a final resort, the Petitioner submitted an appeal to the Board of Finance and Revenue at the beginning of 2024, stating that its services are professional and do not qualify as tangible personal property. The Board of Finance and Revenue confirmed all the previous decisions made by the DOR and BOA. They confirmed Petitioner's services are indeed taxable cloud computing and support services to canned computer software.

Conclusion

This case shows how difficult it may be to navigate sales tax requirements in the US and how valuable the decisions of the competent Courts and government, federal and state, bodies are. With different rules across the US states, businesses sometimes need help distinguishing when their services are taxable and when they are not under the sales tax laws.

Source: Deloitte