The Pennsylvania Supreme Court has granted oral argument in our closely-watched case that could determine whether software is tangible personal property subject to Pennsylvania sales and use tax. If the Supreme Court reverses the Commonwealth Court decision and decides in our favor, it could trigger significant refunds for businesses that have paid Pennsylvania sales or use tax on pre-written software.
Oral argument in Dechert LLP v. Commonwealth of Pennsylvania (12 MAP 2008) has been scheduled for December 2, 2008. We are arguing that software, including pre-written software, is not tangible personal property, regardless of the method of delivery.
If we prevail in the Dechert case, this could create a refund opportunity for any business that has purchased pre-written software for delivery in Pennsylvania. The total amount of refunds at stake is likely significant. Most software vendors have historically collected Pennsylvania tax on their sales of pre-written computer software delivered to Pennsylvania on a tangible medium, such as a disc or tape. In addition, since November 2005, most vendors have even been collecting and remitting Pennsylvania sales and use tax on sales of pre-written computer software delivered to Pennsylvania by electronic means, based on the Pennsylvania Commonwealth Court decision in Graham Packaging Company v. Commonwealth, 652 F.R. 2002 (2005).
Many well-advised taxpayers have already filed refund claims for Pennsylvania sales or use tax paid on all of their purchases of pre-written software in anticipation of the Dechert case. The fact that the Pennsylvania Supreme Court has granted oral argument in Dechert should give these taxpayers reason to hope.
Since 2006, the Pennsylvania Supreme Court has granted oral argument in 12 tax-related cases on appeal from the Commonwealth Court. In two-thirds of those cases, the Pennsylvania Supreme Court reversed the decision of the Commonwealth Court, in whole or in part.