Background

On August 3, Reed Smith filed an Application for Reargument with the Pennsylvania Supreme Court requesting that the court reconsider its July 20 decision in Dechert LLP v. Commonwealth1, wherein it held that purchases of licenses to use canned computer software, however delivered, are subject to sales tax. The court indicated that it arrived at its decision by giving "substantial deference" to the Department of Revenue's interpretation of the sales tax statute. In our Application for Reargument, we assert that the court's conclusion that the Department of Revenue is entitled to substantial deference cannot be reconciled with its holding that purchases of licenses to use electronically delivered canned computer software are subject to sales tax.2 The Department did not file an Answer in opposition of our Application.

Since the enactment of the sales tax statute in 1971, the Department's interpretation has been that purchases of canned computer software delivered on a tangible medium, such as a disc, are purchases of tangible personal property, and thus, subject to tax. Conversely, the Department's interpretation of the taxing statute since that time has been that purchases of electronically delivered canned computer software are not purchases of tangible personal property and are not subject to tax. Although the court said it was giving substantial deference to the Department, it ignored these long-standing, published interpretations of the tax statute, and held in Dechert LLP that all purchases of canned computer software, even purchases of canned computer software delivered electronically, are subject to tax.

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