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Proposed "Tech Tax" Could Derail PA Start-Up Businesses

Corporate and Securities Alert | June 15, 2017
By: Ryan Udell, Ian Doherty and Kevin Koscil

Pennsylvania Governor Tom Wolf, in an attempt to help close the Commonwealth’s approximate $3 billion budget deficit, has included a reinstatement of Pennsylvania’s so-called “tech tax” in the proposed 2017-2018 budget. The tech tax is essentially an application of Pennsylvania’s sales and use taxes to a variety of computer related services, including hardware and software consulting, system design services, data processing, web hosting and related services, custom computer programming services, computer facilities management services and other technology related services. An exemption from this tax was enacted in 1997 (and the budget proposes to do away with this exemption).

If enacted as proposed, Pennsylvania would join 15 other states that fully or partially tax computer services. However, of those 15, only four impose taxes on software consulting services (as the Pennsylvania tech tax would), and Pennsylvania’s proposed six percent tax (which grows to eight percent in Philadelphia County and seven percent in Allegheny County) would be higher than each of those four states.

Proponents of the tech tax claim that the it would result in over $350 million in additional taxes collected over the next year. Opponents of the tax have expressed grave concern that the implementation of the tech tax would result in companies and individuals fleeing the Commonwealth and would impede the growth of Philadelphia’s and Pittsburgh’s burgeoning start-up communities.

The 2017-2018 proposed budget, including the tech tax, must be finalized prior to July 1, so stay tuned for updates on this matter. If you have questions or would like additional information, please contact Ryan Udell (udellr@whiteandwilliams.com; 215.864.7152), Ian Doherty (dohertyi@whiteandwilliams.com; 215.864.7090) or Kevin Koscil (koscilk@whiteandwilliams.com; 215.864.6827).

This correspondence should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult a lawyer concerning your own situation with any specific legal question you may have.
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