Sales Tax Articles
Sales Tax State Activity Update - January 2006
Pennsylvania Discusses Bricks to Clicks Security
Facts
The Taxpayer is entering a new line of business in which they will manufacture and sell security and control monitoring systems equipment. The equipment will consist of such items as security cameras, sirens, motion sensors, and associated ancillary equipment. The equipment will be sold with software which is offered in a tangible medium and governed by a license agreement.
The equipment and the accompanying software will be sold to wholesalers and retailers, who will then sell the equipment to residential customers. The equipment will be installed by the customer.
After the sale of the physical equipment the Taxpayer will enter into agreements with customers to provide a consumer web service in which the customer subscribes to and enables them to remotely access the monitoring, security and control system equipment from any web browser or cell phone connected to the Internet. The service will also allow the customer to access the video images being captured by the cameras in their residence.
The Taxpayer will outsource the delivery of the Web service through two service providers. One service provider will offer e-commerce website design implementation and hosting, customer account set-up, management and security, subscription order management and recurring payment processing systems, customer contact services, information exchange services and program management services.
The second service provider will offer the means to allow the subscribing customer to remotely access software through a web-based service so they may use the software in connection with the monitoring, security and control system from a remote location.
The software provided by this service provider is for installation and use by the subscribing customer on its local personal computer. The software will enable the computer to control locally installed products of the service provider, to communicate with or notify the user at remote locations and to communicate changes to the service provider's server. The software will be transferred to the customers as a part of the equipment, regardless of whether or not the customer subscribes to the Web based access service.
Ruling
The Pennsylvania law imposes a sales tax of six percent of the purchase price on each separate sale at retail of tangible personal property or certain enumerated taxable services within Pennsylvania as described in 72 P.S. § 7202(a). The services described above are not one of the certain enumerated and specifically detailed taxable services. Although Pennsylvania does impose sales and use tax on telecommunications services, premium cable services, and the transfer of canned software and canned software updates, the personal web services offered by Taxpayer do not qualify as any of these items.
View the entire ruling on the Pennsylvania Department of Revenue website.
(Letter Ruling No. SUT-05-029, PA Department of Revenue, 11/17/2005)
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