Pennsylvania & Ohio and Sales Tax – SaaS, Software & Other

This month, we continue our blog series with a contrast of a couple of Ohio Valley states – Pennsylvania and Ohio – specifically their treatment of technology items for sales tax purposes.

Here’s what you can discover:

Software as a Service (SaaS) in Pennsylvania vs. SaaS in Ohio

Explanation of the taxability of SaaS in Pennsylvania and Ohio.
- SaaS is taxable in Pennsylvania.
- SaaS is taxable in Ohio with some exceptions for business purposes.

Software in Pennsylvania vs. Software in Ohio

Detail the tax implications for prewritten and custom software in both states.
- Prewritten software is taxable in both states.
- Custom software is exempt in Pennsylvania, but in Ohio, business use is taxable, while personal use is not.

Digital Goods

Discuss the taxation of digital products like e-books, music, and streaming services in Pennsylvania and Ohio.
- Pennsylvania imposes tax on digital goods.
- Ohio taxes digital goods, with certain exceptions.

Sales Tax Holidays

Overview of the presence or absence of sales tax holidays in both states.
- Pennsylvania does not have sales tax holidays.
- Ohio offers a sales tax holiday annually, with details on eligible items.

Economy

Brief insight into the economic drivers of Pennsylvania and Ohio.
- Agriculture is a major industry in Pennsylvania.
- Ohio’s economy is driven by industrial and manufacturing sectors.

Wait! Already know you need help with Pennsylvania or Ohio issues? Please reach out to us at info@milesconsultinggroup.com

1. Software as a Service (SaaS) in Pennsylvania vs. SaaS in Ohio

Software as a Service (SaaS) is subject to sales tax in several jurisdictions across the country. Approximately half of states do tax the SaaS revenue stream. As you’ll see below, both states are similar regarding their treatment of sales tax.

Cloud Computing Services are taxable in Pennsylvania.

Cloud computing in the form of software as a service is subject to Pennsylvania’s sales and use tax if the user is located in Pennsylvania.

SaaS is taxable with exceptions in Ohio.

Use by customers of a provider’s services to perform computations, run programs, or store data is subject to sales and use tax in Ohio if the customer is using the service for business purposes.

2. Software in Pennsylvania vs. Software in Ohio

Pennsylvania does impose sales and use tax on prewritten computer software sold electronically.

The retail sale or use of canned software, including updates, transferred electronically is subject to Pennsylvania’s sales and use tax laws.

Prewritten computer software delivered electronically is subject to tax in Ohio.

Ohio imposes sales tax upon the sale, rental, lease, or use of prewritten, or canned, software regardless of the delivery method.

The sale of custom computer software delivered electronically is not subject to tax in Pennsylvania.

Sales of custom computer software delivered electronically are exempt from Pennsylvania’s sales and use tax as the purchase of a nontaxable computer programming service.

The sale of custom computer software delivered electronically is not subject to tax, with exceptions, in Ohio.

Whether custom software delivered electronically is taxable depends on whether the software is for personal or business use. Custom computer software for business use is a taxable computer service. Custom computer software for personal use is exempt from sales tax.

3. Digital Goods

States vary in their treatment of electronically delivered goods including e-books, music, and streaming video. Some states consider all of these types of products to be taxable or not, while others call out specific taxability depending upon the product.

In Pennsylvania, digital products are taxable.

On July 13, 2016, the Pennsylvania General Assembly enacted amendments to the Tax Reform Code of 1971 that explicitly subject electronically and digitally transferred products to Pennsylvania’s sales and use tax laws, effective Aug. 1, 2016.

In Ohio, digital products are taxable with exceptions.

Effective Jan. 1, 2014, Ohio subjects to tax any transaction by which a specified digital product is provided for permanent or less than permanent use.

4. Sales Tax Holidays

States often offer sales tax holidays during specific times of the year, during which certain items are sold tax free. These holidays vary greatly by state. Here’s how Pennsylvania and Ohio shake out.

Pennsylvania does not have any sales tax holidays.

The sales tax holiday in Ohio began on July 30 and ended on August 8. All tangible personal property that is less than $500 is exempt, but with exceptions.

For more information on sales tax holidays, click here.

5. Economy

Agriculture is a major industry in the commonwealth of Pennsylvania. PA ranks first in the U.S. in Agaricus mushroom production, fourth in Apple production, fourth in Christmas tree production, fifth in dairy sales, fifth in grape production, and seventh in winemaking.

Historically, different geographic regions in PA were centers for different forms of agricultural production, with fruit production occurring in the Adams County Region, fruit and vegetables in the Lake Erie region and potatoes in the Lehigh County region. Modern agricultural production in PA includes corn, wheat, oats, barley, sorghum, soybeans, tobacco, sunflowers, potatoes, and sweet potatoes.

Ohio’s geographic location has proven to be an asset for economic growth and expansion. Because Ohio links the Northeast to the Midwest, much cargo and business traffic passes through its borders along its well-developed highways. Its border with Lake Erie allows for numerous cargo ports.

Ohio is an industrial state and is the second largest producer of automobiles behind Michigan.

Ohio has the third largest manufacturing workforce behind California and Texas. Ohio has the largest bioscience sector in the Midwest and is a national leader in the “green” economy. Ohio is the largest producer of in the country of plastics, rubber, fabricated metals, electrical equipment, and appliances.

Fun Facts

Pennsylvania Fun Facts:

Of the original 13 colonies, Pennsylvania is the only state that does not border the Atlantic Ocean.
Hershey, PA is considered to be the Chocolate Capital of the United States.
In 1909, the first baseball stadium was built in Pittsburgh.
Pennsylvania is the first state to list their web site URL on a license plate.
Betsy Ross made the first American Flag in Philadelphia.
The Rockville Bridge in Harrisburg is the longest stone arch bridge in the world.
Actor Jimmy Stewart was born and raised in the town of Indiana. Each year at Christmas, the downtown area is decorated in the theme of the film, “It’s a Wonderful Life.”
Punxsutawney citizens are proud to be overshadowed by their town’s most famous resident, the world-renowned weather forecasting groundhog, Punxsutawney Phil. Punxsutawney is billed as the weather capital of the world.
Located in the Grape Coast region of Pennsylvania the city of Northeast has four thriving wineries and is home to the largest Welch’s grape processing plant in the country.
Pennsylvania is coined the snack food capital of the world. It leads all other states in the production of pretzels and potato chips. The U.S. Chocolate industry is centered in Hersey, Pennsylvania, with Mars, Godiva, and Wilbur Chocolate Companies nearby, and smaller manufacturers such as Asher’s in Souderton, and Gertrude Hawk Chocolates of Dunmore.

Ohio Fun Facts:

According to the Ohio state flag code, the flag is to be folded 17 times to represent Ohio as the 17^th
Six Presidents of the United States have been elected who had Ohio as their home state. These include Ulysses S. Grant, William McKinley, Rutherford B. Hayes, William H. Taft, James A. Garfield, Warren G. Harding and Benjamin Harrison.
The word “Ohio” is derived from the Iroquois Indian word, which means “Great River.”
John Glenn was the first American to orbit the earth. In 1998, at the age of 77, he became the oldest person to travel in space by serving as a payload specialist on STS-95 aboard the space shuttle Discovery.
The first permanent settlement in Ohio is Marietta. General Rufus Putnam founded the settlement in 1788. It was named in honor of the then French queen Marie Antoinette.

Our team at Miles Consulting Group is always available to discuss the specifics of your situation, whether in Pennsylvania, Ohio, or other U.S. States, and help you navigate the complex tax structures arising from multistate operations. Book a consultation, drop us a line, or send us an email at info@milesconsultinggroup.com.