Effective August 1, 2016, the Pennsylvania Legislature expanded Pennsylvania’s sales tax base by amending the definition of “tangible personal property” to include 10 enumerated digital goods, among them music, books, video, apps, and streaming services.1 The amended statute also clarified that digital goods are taxable, regardless of the method of delivery or manner of billing. Specifically, digital goods sourced to Pennsylvania are taxable:
whether electronically or digitally delivered, streamed or accessed and whether purchased singly, by subscription or in any other manner, including maintenance, updates and support.2
Based on the plain language of the statute, it does not appear that the Legislature intended to impose a tax on “maintenance, updates, or support.” Rather, the statutory language clarifies that the 10 defined digital goods are taxable even when they are purchased as part of a transaction characterized as a provision of “maintenance, updates, and support.” So, for example, a sale that a vendor invoices as a sale of “software maintenance and support” would be taxable if the maintenance and support actually includes the delivery of a new version of canned software.
However, in February 2017, the Pennsylvania Department of Revenue (the “Department”) issued Letter Ruling SUT-17-001, which provided guidance regarding the Department’s interpretation of how the amended statute applied to “support services.” The ruling surprised many taxpayers by concluding that the amended statute imposed sales tax on a wide variety of software support services, including IT help desk services, and many software consulting and training services.3 However, within a month of publication, the ruling was removed from the Department’s website and the Department indicated that a revised version would be issued.
Last week, the Department issued a revised version of the ruling.4 The new version reverses several of the conclusions reached in the original version of the ruling. However, the revised ruling continues to reflect the Department’s position that the amended statute broadly subjects support services to Pennsylvania sales and use tax.5 As noted above, we believe this broad interpretation goes beyond the statutory language.