The Pennsylvania Department of Revenue has issued a letter ruling addressing the extent to which it considers support services to canned computer software to be subject to Pennsylvania sales and use tax. See Ruling No. SUT-17-001.

Effective August 1, 2016, Pennsylvania’s sales tax statute was amended to impose tax on an array of digital goods, as well as “maintenance, updates and support” for digital goods, including canned computer software. The term “support” is not defined in the taxing statute or in prior guidance issued by the Department. However, Ruling No. SUT-17-001 broadly defines “support” to include “consulting” and “training” related to canned computer software, in addition to various technical support services. While some questions remain, it appears that the Department’s interpretation of the term “support” may include some services not commonly viewed as computer “support” services.

Finally, the Department clarified that the provisions of its policy statement at 61 Pa. Code § 60.19 no longer apply to the extent they are inconsistent with the current statutory provisions.

As a result of guidance issued by the Pennsylvania Department of Revenue (“DOR”), solar generators may qualify for the sales and use tax manufacturing exclusion.  Accordingly, solar generators’ purchases of expensive machinery, equipment, parts and foundations, and supplies would be excluded from Pennsylvania’s sales and use tax.

The DOR issued guidance in Sales Tax Bulletin No. 2010-01 and Sales and Use Tax Ruling No. SUT-10-0001 on tax exclusions for Pennsylvania-based solar generators.  As a result of this guidance, taxpayers constructing solar generation facilities in Pennsylvania could qualify for the state sales and use tax manufacturing exclusion.

Eligibility for the Exclusion:

The guidance suggests that in order to qualify as being “engaged in the business of manufacturing electricity,” the following must apply:

  • The electricity production is conducted in an independent, separate and distinct location, utilizing independent, separate and distinct machinery and supplies devoted predominately to electricity producing activities.
  • The electricity production is the responsibility of employees assigned to the job of electricity production and whose duties are predominately related to electricity production.
  • Separate accounting or interdepartmental billing is provided to reflect the cost of operating electricity production activities and to charge these costs against any other business activities conducted by the electricity producer.
  • The electricity production activities are separate and distinct from any other business activities of the electrical producer.
  • Electrical production activities are of sufficient size, scope and character that they could be conducted on a commercially viable basis separate and distinct from any other business activities of the electricity producer.

Accordingly, if a Pennsylvania solar generator meets all of the criteria listed above, it could claim the manufacturing exclusion from sales and use tax on the purchase of equipment, machinery, parts and foundations therefore, and supplies claimed to be directly used in electricity manufacturing.  The particular generator in the ruling planned to sell the output to the public utility.  It seems generators selling to the wholesale market or entities could also qualify; however, the DOR has not issued a specific guidance on this situation.

Claiming the Exclusion:

A contractor building a Pennsylvania solar generation facility could also claim the manufacturing exclusion on the purchase of equipment, machinery, parts and foundations therefore, and supplies to be installed pursuant to a construction contract.  The contractor would have to execute and tender a properly completed Pennsylvania exemption certificate (Form REV-1220) to the Pennsylvania licensed vendor.  The contractor must also obtain a properly completed Pennsylvania exemption certificate (Form REV-1220) from the person/entity with whom he enters into such construction contract in order to protect himself in case of a Pennsylvania sales and use tax audit.

Recovering Pre-paid Sales and Use Tax on Exempt Purchases:

If a Pennsylvania solar generator or a construction contractor has already paid sales and use tax on purchases that could have been exempt from taxation, they may be able to claim a refund of the tax paid on purchases made in the last three years.

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If you have any questions on whether your facility qualifies for the manufacturing exclusion or whether you may be entitled to sales and use tax refunds, please contact Paul Morcom, or any member of McNees’s tax group, to discuss.