Does Tangible Really Mean Tangible? PA Supreme Court Finds Canned Software is Tangible and Subject to Sales Tax

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7/23/2010

The Pennsylvania Supreme Court held earlier this week that canned software falls under the definition of “tangible personal property” and is subject to sales tax in the state (Dechert LLP v. Commonwealth of Pennsylvania). The taxpayer in this case was a large international law firm. The analysis of the appeals court and the state supreme court struggled to stretch this definition enough to reach software. Pennsylvania defined “tangible personal property” to mean “[c]orporeal personal property including, but not limited to, goods, wares, merchandise,… electricity for non-residential use, prepaid telecommunications,” and some cable television services. The court held that the inclusion of items in this definition such as cable TV and electricity in the definition indicated that the legislature intended a more flexible interpretation of the term and that the legislature meant to include software under that definition. Other states examining this issue have focused on the fact that software resides on tangible media in the form of rearranged electrons and that this physical existence makes it tangible personal property, but the court in this case felt it did not need to go that far. “[W]hile the statutory language is unclear, it is apparent that the legislature intended that canned computer software be subject to sales tax [in Pennsylvania].” The Department of Revenue had interpreted the statute to include canned software for the last decade or so. That fact seemed to influence the court’s decision in this case, as well.

Posted at 7:50 AM by Daniel De Jong | Category: Sales & Use Tax | Permalink | Email this Post | Comments (0)

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