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The Pennsylvania Department of Revenue (PA DOR) has released additional sales tax guidance on software, digital goods, and related services. The guidance outlines the Department’s current positions on software-related topics and provides several examples of taxable and nontaxable transactions. The guidance is of great interest to software vendors, software consulting firms, and information technology providers.
While the taxability of canned and custom software has been consistent for many years in Pennsylvania, the current guidance addresses areas of contention and confusion surrounding software and services. Notably, the guidance provides that most services to software are taxable, for example, consulting is taxable if sold in conjunction with the sale of software (or tangible personal property) while consulting is nontaxable when the result is a recommendation and not sold with software. Software consulting has long been an area where the tax treatment from vendor to vendor is inconsistent.
In addition, Pennsylvania has traditionally treated website design as a nontaxable service. The new guidance from the Department states that website development is taxable if the website is transferred to the customer. If the developer retains control of the website, the development is not subject to sales tax. Website hosting services remain nontaxable as long as they are separately stated.
The Department’s guidance will clarify questions surrounding the taxability of software-related transactions for many taxpayers. Impacted industries should review their invoicing procedures to ensure consistency with the Department’s current guidance. The guidance from the Department can be viewed here.
If you have questions on Pennsylvania’s guidance or other SALT matters, please contact HBK’s SALT Advisory Group at hbksalt@hbkcpa.com.
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