News and Insights

Pennsylvania Letter Ruling Addresses Cloud Computing

Tax Development Jun 12, 2012

In a private letter ruling issued May 31, 2012, the Pennsylvania Department of Revenue (“Department”) concluded that accessing prewritten software via the Internet is taxable, as long as the user is in Pennsylvania. Letter Ruling SUT-12-001. The ruling represents a marked departure from the Department’s earlier treatment of cloud computing. Prior Department guidance advised that access to software solely through the Internet was not a taxable transaction, as long as the server did not reside in Pennsylvania.

In its recent letter ruling, the Department instead focuses on the location of the user. Computer software is tangible personal property, and therefore, the charge for electronically accessing such software is taxable if the user is accessing the software from within Pennsylvania. However, if the end user is located outside Pennsylvania, the transaction is not subject to tax, even if the server is located in Pennsylvania. If the billing address for prewritten software accessed remotely is a Pennsylvania address, all users associated with that billing address are presumed to be located within the state. In order to show that some users are actually out of state, the purchaser is required to submit an exemption certificate to the seller stating the percentage of users who are located in Pennsylvania. The letter ruling indicates that sales and use tax would not be due on the percentage of end users located outside Pennsylvania. The seller must, however, collect tax on the portion of the charge attributed to in-state users.


Dennis J. Kolumber, Jr.