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Pennsylvania State Senate
04/19/2024 11:56 AM
Pennsylvania State Senate
https://www.legis.state.pa.us/cfdocs/Legis/CSM/showMemoPublic.cfm?chamber=S&SPick=20170&cosponId=26115
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Senate of Pennsylvania
Session of 2017 - 2018 Regular Session

MEMORANDUM

Posted: June 26, 2018 03:16 PM
From: Senator Donald C. White and Sen. Scott E. Hutchinson
To: All Senate members
Subject: Clarifying the Sales and Use Tax regarding software and security equipment
 
Please join me in co-sponsoring legislation that would clarify the Sales and Use Tax (SUT) regarding canned and customized software, financial institution security equipment and services fees on financial institutions.

The Pa. Dept. of Revenue (DoR) has started to issue audit reports assessing the SUT on financial institutions for the purchase of any computer service or data processing contract that utilizes “canned software.” This is occurring even if the predominant purpose of a contract is to obtain non-taxable services. This assessment is occurring when banks are purchasing core processing services – functions that are essential to the bank - including:
  • Creating a customer database that is accessible to bank personnel;
  • Processing banking transactions for customers;
  • Generating monthly statements;
  • Making electronic and mobile banking available to customers;
  • Monitoring accounts for fraud;
  • Providing access to ACH and credit card networks; and,
  • Conducting securities purchase and sale transactions.
Since the 1980’s, Pa. has taxed “canned software” via DoR bulletins and court rulings. Until these recent audits, DoR had never taken the position that bank core processor services constituted the purchase of “canned software” and related support services.

Recently, the DoR has also started to impose the SUT not only on the actual cost of any financial institution security equipment purchased by contractors, but on the total amount paid by financial institutions to contractors for the installation, repair and maintenance of the security equipment. This is a significant change in their interpretation of existing SUT law from 1978 and creates inconsistency and uncertainty.

This legislation would also clarify that fees on financial services provided by financial institutions are not subject to the SUT.

I seek to preserve the long-standing policies that have reasonably applied to the SUT.

Thank you for your consideration.

Introduced as SB1258