United States

Pennsylvania addresses sales tax on disaster recovery services

Ruling creates a number of uncertainties


On April 22, 2016, the Pennsylvania Department of Revenue issued Letter Ruling SUT-16-001, advising a business that monthly membership fees charged to customers for information technology disaster recovery services are not subject to sales and use tax, but that additional equipment usage fees and disaster declaration fees are subject to sales tax and the business’ use of equipment in performing disaster recovery services is subject to use tax.

The taxpayer’s business in the letter ruling request is a global software and information technology services company that offers information technology disaster recovery services to its customers pursuant to agreements under which the business will provide telecommunications equipment; servers and server accessories; desktops and laptops; networking, server and computer software; and tapes and disks to its customers in the event of a disaster, which the customers can obtain at one of the business’ disaster recovery centers and through delivery via mobile units. The taxpayer charges its customers a monthly membership fee for the right to have access to this service, and, in the event of a disaster, charges an additional fee to formally declare the disaster and an hourly or daily rate for actual use of equipment. With the exception of annual testing, all equipment is held idle while awaiting use.

In relation to these facts, the department determined that, pursuant to 72 P.S. section 7202(a), the monthly membership fees for a contract to perform disaster relief services are not subject to sales tax, but the additional fee to formally declare the disaster and the per hour or per day fee for actual use of the equipment are taxable. Additionally, the department advised that to the extent sales tax was not paid on the full purchase of equipment used to perform its disaster relief services, use tax would be due.

Businesses engaged in similar activities should consider this ruling in determining whether to (1) collect and remit sales tax on sales to Pennsylvania customers, and (2) pay use tax on the purchase price to acquire the equipment used to perform similar services. However, in performing this analysis taxpayers should be aware that, given the lack of information provided in the ruling regarding the nature of the disaster declaration fee, it is uncertain why the department characterized that fee as a sale of tangible personal property or taxable service. Additionally, presuming that the taxability of the per hour or per day fee for actual use of the equipment was taxable as a rental of tangible personal property, it is unclear why the department has taken the position that the business’ use of that equipment would be subject to use tax. Generally, when equipment is purchased for the purposes of leasing it, the lease is subject to sales tax and the initial purchase of the equipment is exempt as a purchase for resale. Accordingly, taxpayers should approach the application of this ruling in relation to those items with great care.


How can we help you?

Contact us by phone 800.274.3978 or
submit your questions, comments, or proposal requests.



Tax innovation webcast series 2021

  • December 02, 2021


Global mergers & acquisitions webcast series

  • November 01, 2021