Tax rules on services can be tricky. When it comes to technology services it gets much trickier. Add in remote service, and the head starts to spin. One area that is especially complex is help supply services. Help supply services are defined as “providing temporary or continuing help where the help supplied is on the payroll of the supplying person or entity, but is under the supervision of the individual or business to which help is furnished.”1 PA Code Section 60.4 (b) states that the service is taxed if delivery or use occurs within Pennsylvania. “Delivery” is defined as when the employee reports to a location within the commonwealth, and “use” is defined as an employee performing work at a location within Pennsylvania.
Due to the pandemic-induced mass movement to remote work, the employee providing the help supply service who may have previously been working in Pennsylvania may now be performing the services from outside the state. To clarify the tax position, on Sept. 16, 2021, the Pennsylvania Department of Revenue (DOR) issued the Sales and Use Tax Bulletin SUT 2021-03 regarding the taxation of help supply service in a remote work environment. In SUT 2021-03, DOR stated that the definition of “delivery” and “used” is not where the employee is located if the employee is not working at the location of the purchaser of the services. Rather, the DOR reasons that, in instances where the employee is working off-site and the benefit of the service occurs within Pennsylvania (as stated in 61 Pa Code Section 9.3(a)), then the service is subject to Pennsylvania sales tax. Additionally, the bulletin states that if the purchaser is located in Pennsylvania, then DOR will assume the benefit of the service is received in Pennsylvania unless the purchaser can document otherwise. DOR provides examples that state if the employee would have performed the service at a location in Pennsylvania, then the benefit is received in Pennsylvania and is subject to state tax. Other examples state that if the employee performs work on a server located in Pennsylvania, the benefit is also received in Pennsylvania and is subject to tax. The bulletin also states the converse is true: if the employee would not have reported to Pennsylvania or the server is located outside of Pennsylvania, an employee working outside the state would not be subject to Pennsylvania tax.
DOR has provided the PICPA with further clarification stating that the department will allow a purchaser to provide the vendor with a properly completed sales tax exemption certificate if the services are not sourced to Pennsylvania, as well as provide a multiple-points-of-use exemption certificate if the benefit of the services can be sourced to multiple states. In both instances, it will be the responsibility of the purchaser to substantiate that the services are properly sourced outside Pennsylvania.
To comply with DOR’s guidance, companies should review their help supply service contracts and discuss with the vendor where the employee is performing the work and whether or not that work should be sourced to Pennsylvania based on SUT 2021-03. If it is determined that the service is sourced outside of Pennsylvania, the purchaser should compile the proper documentation and provide the vendor with a properly completed exemption certificate. Other consideration should be given to whether the jurisdiction where the employee is located would tax the service provided; and if so, does that jurisdiction provide for reciprocity with Pennsylvania.
1 72 P.S. Section 7201(cc)
