Reed Smith Client Alerts

The Pennsylvania Department of Revenue has issued a letter ruling advising a vendor that its information retrieval service is subject to Pennsylvania sales tax. The rationale underlying the letter ruling echoes the arguments made by the Michigan Department of Treasury several years ago when Michigan made an unsuccessful attempt to impose sales tax on information retrieval services. Pennsylvania taxpayers should review the new ruling closely because the Department’s position, if applied consistently, could result in the imposition of Pennsylvania sales and use tax on a wide variety of information services, and other services accessed over the web by Pennsylvania customers.

Authors: Lee A. Zoeller Robert E. Weyman Christine M. Hanhausen Michael I. Lurie

In 1997, the Pennsylvania Legislature ended its six-year experiment with imposing its sales tax on computer services—including information retrieval services—by repealing the tax.1 In the 20 years since the tax on computer services was repealed, the Legislature has not explicitly reinstated a sales tax on information retrieval services.

However, in a recently issued letter ruling, Letter Ruling SUT-17-002 (“SUT-17-002”), the Pennsylvania Department of Revenue (the “Department”) concludes that the Legislature implicitly reinstated the sales tax on information retrieval services when it expanded the sales tax to apply to specified digital products. Specifically, the ruling advises that a vendor’s sales of information retrieval services are taxable as sales of access to canned software and other digital goods under Act 84 of 2016 (“Act 84”), which took effect August 1, 2016. However, the Department’s rationale for treating information retrieval services as taxable, as expressed in the ruling, leaves open the possibility that the Department will ultimately take the position that these services and other web-accessed services were already taxable in Pennsylvania prior to the effective date of Act 84.