61 Pa. Code § 60.19 - Computer software, hardware and related transactions
(a)
Scope. Effective July 1,
1997, the rendition of computer programming, computer integrated systems
design, computer processing, data preparation or processing, information
retrieval, computer facilities management and other computer-related services,
as defined under repealed section 201(dd)-(ii) of the TRC (72 P. S. §
7201(dd)-(ii)), are no
longer subject to Sales or Use Tax. The sale at retail or use of computer
hardware and canned software, as well as services thereto, remains subject to
Sales and Use Tax as the sale at retail or use of tangible personal property
and is not affected by the repeal of section 201(dd)-(ii) of the TRC.
(b) The following words and terms, when used
in this section, have the following meanings, unless the context clearly
indicates otherwise:
Canned software-Computer software that does not qualify as custom software.
Computer hardware-Assembly of physical equipment that is united and regulated by interaction or interdependence to accomplish a set of specific computer system functions.
(i) The term includes any connected equipment
which enables the computer to store, retrieve or communicate to or from a
person, another computer or another device, the results of computer operations,
computer programs or computer data.
(ii) The term also includes associated parts,
which encompass any component of computer system hardware that is used in
connection with and that is necessary to the performance of the hardware's
operation.
(iii) Examples of
computer hardware are: microcomputers; minicomputers; main-frame computers;
personal computers; external hard drives; portable disk drives; memory chip;
compact disc read only memory (CD-ROM) drives; external modems; printers;
scanners; servers; monitors; keyboards; mouses; microphone; network interfaces;
network hubs; network routers; motherboards; daughterboards; central processing
units; controller cards; internal hard drives; digitizer; internal modems;
network interface cards; sound cards; video cards; and network wiring and
cables.
Custom software-Computer software designed, created and developed for and to the specifications of an original purchaser.
Original purchaser-The first person for whom the custom software was designed, created and developed, and to whom it was transferred in a sale at retail.
Storage media-The term includes hard disks, compact disks, floppy disks, magnetic tape, cards and other tangible medium used for the storage of computer readable information.
(c)
Application.
(1)
Computer hardware.
(i) The sale at retail or use of computer
hardware is subject to tax.
(ii)
The sale at retail or use of the services of repairing, altering or cleaning
computer hardware is subject to tax.
(iii) The sale at retail or use of
maintenance, service and warranty contracts for computer hardware constitutes
prepayment for services to tangible personal property and is subject to
tax.
(2)
Computer
software.
(i)
Canned
software. The sale at retail or use of canned software, regardless of
the method of delivery, including updates, enhancements and upgrades is subject
to tax.
(A) Canned software includes custom
software that is transferred pursuant to a sale at retail to a person other
than the original purchaser.
(B)
Computer software designed, created and developed to adapt or modify canned
software to the specific needs of a particular customer does not convert the
canned software to custom software. Any charge for the custom software or
modifications shall be reasonable and be separately stated on the sales invoice
or statement to the customer to be exempt from tax.
(C) A vendor's transfer for consideration to
a purchaser of the temporary ownership, possession or custody of a storage
medium containing canned software for the purpose of being used or recorded by
either the purchaser or vendor on the purchaser's computer hardware is subject
to tax.
(D) The sale at retail or
use of a canned software maintenance contract constitutes a prepayment for
services to tangible personal property and is subject to tax. If a canned
software maintenance agreement provides that the purchaser is entitled to
receive both taxable components, such as canned software updates, enhancements,
upgrades or error corrections, and nontaxable components, such as consultation,
support or training services, the charge for the nontaxable component is not
subject to tax if that charge is separately stated on the sales
invoice.
(ii)
Custom software. The sale at retail or use of custom software
is not subject to tax. The sale at retail or use of custom software constitutes
a purchase of a nontaxable computer programming service.
(A) The sale at retail or use of multiple
copies or licenses of custom software to the original purchaser is not subject
to tax.
(B) The sale at retail or
use of custom software installation, custom software repair and maintenance,
custom software updates, enhancements and upgrades that constitute custom
software is not subject to tax.
(C)
A custom software vendor's purchase of storage media used to transfer custom
software to its customers, and the vendor's purchase of any related materials,
including documentation and training manuals that are transferred to the
customer as part of the sale at retail of custom software, are subject to tax
when purchased by the custom software
vendor.
(d)
Exemptions from tax.
(1) The sale at retail or use of canned
software and computer hardware is exempt if purchased by qualified charitable
organizations, volunteer fire companies, religious organizations and nonprofit
educational institutions, unless the software is used in an unrelated trade or
business; by the Federal government; or by the Commonwealth, its
instrumentalities or political subdivisions, including public school
districts.
(2) The manufacturing,
research, mining, processing, public utility, farming, dairying, agriculture,
horticulture or floriculture exemptions from tax apply to the purchase of
canned computer software and computer hardware predominantly and directly used
in these operations.
(3) Under
section 201(c)(5) of the TRC, the manufacturing and research exemption from tax
applies to the sale at retail or use of tangible personal property or taxable
services by a person engaged in the business of manufacturing or researching
canned software, if the property is predominately and directly used by the
purchaser in the manufacture or research of canned software.
(i) The creation of custom software does not
qualify as manufacturing or research.
(ii) When a purchaser of tangible personal
property uses the property to both manufacture canned software and create
custom software, the purchaser has the burden of establishing that the tangible
personal property is predominately used in the manufacturing or research of
canned software.
(4) The
sale at retail of canned software and computer hardware to a vendor who will
transfer ownership, custody or possession of the canned software or computer
hardware for a consideration in the ordinary course of its business is exempt
from tax as a sale for resale. Canned software or computer hardware used by a
vendor in producing a separate computer product for resale or in providing a
service does not qualify as a sale for resale.
Notes
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