On October 16, 2019, the Pennsylvania Commonwealth Court held that a bank was required to pay sales tax on its purchases of computer hardware, canned computer software, and related services because a statutory amendment superseded the bank’s relied-upon exemption regulation. The court held that the bank complied with the regulation, which exempted from sales tax purchases of security equipment, as “construction contracts,” if: (1) the sellers or their designees installed the computer hardware; and (2) the bank used the equipment for its protection or convenience in conducting financial transactions. Rather, the seller is considered to be the consumer of the property and must pay sales or use tax on the installed equipment’s purchase price. At the time of the regulation’s promulgation, Pennsylvania’s statutes did not define “construction contract.” But, despite the regulation, the General Assembly later statutorily limited the term “construction contract” to “real estate” and “real estate structures.” Contrary to the bank’s argument, the court held that to invalidate the regulation, the state did not have to comply with the Commonwealth Documents Law’s regulation publication requirements. The statutory amendment rendered the regulation inconsistent with the underlying statute. Regardless of whether a regulation’s promulgation follows the proper procedures, a regulation must be consistent with the enabling statute. Victory Bank v. Pennsylvania, 236 F.R. 2014 (Pa. Cmwlth. Ct. Oct. 16, 2019).
