Sales Tax State Activity Update - November 2005

Pennsylvania Rules - Software Downloads Tangible and Taxable (Update)

Last month we brought you a story on the taxability of non-configured (canned) software in Pennsylvania. Below you will find the latest update on this landmark legislation.

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On October 11, 2005 the Petitioner, Graham Packaging Company, L. P. through its new Counsel filed an "Application to Disclose a Material Factual Error in the Record and Supplement the Record".

The purpose of the Application was to correct the fact that the canned software updates were received via computer disks and were not transmitted electronically via an electronic download.

On October 18, 2005 the Commonwealth responded to the Application through its Counsel. The response took the position that the Commonwealth's brief and its arguments are not dependent in any way on the method by which the Petitioner renewed the licenses to use the canned software.

The question presented by the Commonwealth to the Court was the following:

"Is the renewal of a license to use canned computer software that was originally delivered by computer disk subject to sale tax?"

The Commonwealth's case was based on the initial acquisition of the software by disk, which makes it tangible personal property.

In addition, the Commonwealth believes that the Court's opinion answering the question presented in the affirmative as it did, is sound, well reasoned, and in accordance with applicable law.

Subsequently, the Pennsylvania Department of Revenue issued Sales Tax Bulletin 2005-04; which is effective 11/01/2005. The bulletin follows the Court's decision in Graham, and states effective 11/01/2005 sales tax must be charged on all sales of canned software regardless of the delivery method.

View the full text on the Pennsylvania Department of Revenue Web site.

(Graham Packaging Company, LP, v. Commonwealth of Pennsylvania, No. 652 F.R. 2002, 9/15/2005 and Sales Tax Bulletin, 2005-04, PA Department of Revenue , 11/01/05)

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