explaining that "the test focuses on whether the essence or true object of the sale is tangible personal property or intangible property or a service with tangible property serving only as the medium of transmission"
How later courts described this case
- explaining that "the test focuses on whether the essence or true object of the sale is tangible personal property or intangible property or a service with tangible property serving only as the medium of transmission"
- holding that tangible personal property includes canned computer software delivered electronically
- applying the essence of the transaction test to hold that commercially sold prepackaged standardized computer software was subject to the imposition of sales tax
- where, under the "essence of the transaction" or "true object" standard, renewals of licenses to use canned software were sales at retail of "tangible personal property" and, therefore, subject to sales tax; software was not merely incorporeal knowledge or intelligence, but was a physically arranged matter that animated computers; and it did not matter whether the initial or upgraded versions of the software were acquired in disk form or electronically
Written by the judges who cited it.
Later courts went against this
Criticized by Dechert LLP v. Commonwealth, 2007 Pa. Commw. LEXIS 185 (2007)
882 A.2d 1076 (Pa.Cmwlth.2005), which is virtually indistinguishable, was wrongly decided.
The opinion
DISSENTING OPINION BY
President Judge COLINS.
I dissent. The renewal of a license to use canned computer software is not subject to sales tax under the explicit terms of the Tax Reform Code of 1971 (Code). 1
Sales tax is imposed on the sale at retail of tangible personal property or services. Section 202(a), 72 P.S. § 7202(a). “Sale at retail” encompasses the transfer for consideration of the ownership, custody or possession of tangible personal property, including the grant of a license to use or consume tangible personal property. Section 20100(1), 72 P.S. § 720100(1). “Tangible personal property” is
corporeal personal property including, but not limited to, goods, merchandise, steam and natural and manufactured and bottled gas for non-residential use, electricity for non-residential use, prepaid telecommunications, premium cable or premium video programming service, spirituous or vinous liquor and malt or brewed beverages and soft drinks, interstate telecommunications service ... and charged to a service address in this Commonwealth, intrastate telecommunications service....
Section 201(m), 72 P.S. § 7201(m). Exclusions from imposition of the sales tax include the sale at retail of personal computers and single-user licensed software purchased with a personal computer; the exclusion does not include the sale at retail of multiple-user licensed software.
The multiple-user license renewals at issue in the present case fall outside the statutory definition of tangible personal property, and absent a change in the statutory definition of tangible personal property, the Commonwealth may not by regulation, or policy statement, impose the sales on the renewal of multiple-user software licenses. I see no reason to consult the tax practice and policy of other states. By the statute’s explicit terms, the renewal of multiple-user licenses to use canned computer software is not a transfer of tangible personal property or a license to use tangible personal property.
. Act of March 4, 1971, P.L. 6, as amended, 72 P.S. §§ 7101-8297. P.L. 6, as amended, 72 P.S. §§ 7101-8297.