The Pennsylvania Board of Finance and Revenue (“BF&R”) determined that WaWa, Inc. (“WaWa”) was entitled to refunds of sales tax that it paid, for which amounts were attributable to purchases of software used in locations outside of Pennsylvania. In re WaWa Inc., Docket No. 2326338 (June 6, 2024). The Pennsylvania Department of Revenue (“Department”) had denied the refunds and the Board of Appeals (“Board”) determined that the company had not sufficiently proved its appeal. The company appealed to the BF&R.

WaWa is headquartered in Pennsylvania and operates convenience stores in Pennsylvania and in other states. It purchased software, for self-checkout stations, to be used throughout its store locations in multiple states. WaWa paid sales tax on the purchases and requested refunds only to the extent the software was used out of state. The Department denied the refunds.

Software as a Service (i.e., software that is owned, operated, and maintained by a provider) that is purchased for access by users outside of Pennsylvania is not taxable in Pennsylvania. 72 P.S. 7201(m)(2)(tangible property); 72 P.S. 7201(o)(1)(use); 72 P.S. 7202 (imposition); PA Letter Ruling SUT-12-001 (May 31, 2012). Had the software been canned software for delivery outside of Pennsylvania, the same non-taxable result would have applied. 72 P.S. 7201(m)(2)(tangible property); 72 P.S. 7202 (imposition). The point is, there should have been no sales tax assessed for out-of-state use. There can be simple reasons for WaWa’s predicament, from bulk purchases for which ultimate use could not be determined initially to clerical oversight.

The company appealed the Department’s denial to the Board and provided schedules, invoices, reason codes, proofs of payment, and factual and legal arguments. The Board agreed that the company paid sales tax. The Board determined, however, that notwithstanding the proofs provided, the company did not sufficiently prove out-of-state use of the software, such as the type of software, who used the software, and the location of the users of the software. The Board denied the company any relief from the refund denials.

The company stuck to its guns and appealed to the BF&R (the next appeal level after the Board). At the BF&R, the company provided the information it had provided previously and upped the ante with an explanation of the purpose of the software, the percentage of store locations out of state that used the software, and the out of state store-location-licensed sites.

The BF&R agreed with the company and granted the refunds for the out-of-state uses. WaWa was undeterred and kept up the fight. Regardless of the level of the appeal, it pressed ahead, ultimately found solid ground, and won.

The takeaway here is that regardless of the level of the appeal, try to communicate with the appeal forum or adversaries and learn what is missing to get the win. If communication goes flat or you need to go to the next level to get relief, just do it, and do not give in!