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Pennsylvania Corporate Tax Proposal Leaves “Subscription Customer” Undefined

pennsylvania pennsylvania corporate income tax Jul 27, 2026

If your company sells subscriptions across state lines and files corporate income tax in Pennsylvania, where those customers are located may affect the share of its income the state taxes.

The Pennsylvania Department of Revenue has proposed regulations explaining how companies should assign service revenue to the state when calculating Pennsylvania corporate net income tax. The proposal includes a specific rule for subscription services.

It says:

A subscription service is delivered to a location in this Commonwealth if the subscription customer is in this Commonwealth.

But the proposal leaves an important question unanswered: Who counts as the subscription customer?

For a consumer subscription, the buyer and user are often the same person. With an enterprise, SaaS, association or team subscription, the company purchasing the account may be in one state while licensed users are spread across several others.

The answer could affect how much subscription revenue a company assigns to Pennsylvania and, in turn, how much of its income the state may tax.

This is not a new sales tax on subscription purchases. It concerns how a multistate company determines the share of its income assigned to Pennsylvania for corporate tax purposes.

The underlying approach isn’t new. Pennsylvania has used service-sourcing guidance since 2014. The proposal would put those rules into regulation, but its shorter subscription provision leaves out details included in the earlier guidance.

The regulation is still proposed. It was published July 25, 2026, and public comments are due August 24.

Why Customer Location Matters

Pennsylvania uses a company’s sales in the state to help calculate how much of its overall income may be taxed there.

The calculation compares the company’s Pennsylvania sales with its total sales. If more service revenue is assigned to Pennsylvania, the share of the company’s income attributed to the state may increase.

That’s why the meaning of customer location matters.

Different Rules May Apply to Different Subscriptions

The special rule for subscription services is only one part of the proposed regulation.

Other provisions in the same proposal address data processing, information services, streaming, database services, internet access and software. Many of those services are sold through subscriptions.

Those provisions don’t all use the same test to determine customer location.

Data processing, information services, streaming and database services generally follow the subscriber or customer who requested the service. Business internet access follows where the service is used. Custom software may be divided based on where the customer or its agents use it.

The proposal also includes a general rule for electronically delivered business services. Under that rule, revenue may follow the employees or other designated users who directly receive the service.

The proposal says its special service rules take priority over the general delivery rules. But it doesn’t explain which special rule controls when a subscription could fit more than one category, such as a subscription service, data service or software.

For SaaS and other digital subscription companies, the sourcing method may depend on how Pennsylvania classifies the service, not simply on whether it is sold through a subscription.

Earlier Guidance Provided More Detail

Pennsylvania’s 2014 guidance said that when the physical locations of customers or licensees were difficult to determine, subscription revenue should be divided among states using subscriber or license counts.

That explanation doesn’t appear in the proposed subscription provision. The proposal includes only the shorter statement that a subscription service is delivered in Pennsylvania when the subscription customer is in the state.

The Department says the proposed regulation is intended to reflect its existing guidance. However, the proposal doesn’t explain whether the earlier method for dividing revenue by subscriber or license counts would continue to apply.

What Companies May Need to Document

The Department says the proposal would not create new reporting or recordkeeping requirements because it clarifies existing law.

The proposed regulation would, however, formally state the documentation expected to support a company’s sourcing method. Companies would need records showing the data and assumptions behind their calculations. Any estimates would need to be reasonable, based on verifiable information and applied consistently.

Depending on the subscription, that information could include billing addresses, account ownership, subscriber or license counts, user locations and service usage.

The Department could adjust a company’s sourcing method if it finds the approach unreasonable, inconsistently applied or unsupported by adequate records.

What Happens Next

The regulation has not taken effect.

Businesses and other interested parties may submit written comments to the Pennsylvania Department of Revenue or the Independent Regulatory Review Commission. Comments should identify Regulation 15-464.

The public comment period closes August 24. The Independent Regulatory Review Commission may issue comments, recommendations or objections by September 23.

The Department expects to submit a final regulation in fall 2026. The language could change in response to public comments and regulatory review. If finalized, the regulation would take effect when published in the Pennsylvania Bulletin.

The Insider Take

The public comment period gives subscription businesses and their tax advisers an opportunity to get answers before the regulation takes effect.

Companies that may be affected should review the proposal now and submit real-world examples or questions to the Pennsylvania Department of Revenue. They need clear guidance on what the regulation covers, what it doesn’t cover and which sourcing rule applies when a subscription could fall under more than one service category.

The time to resolve those questions is before the regulation becomes final, not when companies are expected to comply with it.