United States: Sweeping Changes To The Pennsylvania Tax Code - The Passage Of Pa. House Bill 465

House Bill 465, also known as Act 52, was signed into law by Pennsylvania Governor Tom Corbett on July 9, 2013. The Bill makes substantial changes to the Pennsylvania tax code as an integral part of the 2013–2014 budget. While legislation impacting your federal tax bill has become commonplace, changes at the state and local levels are less frequent but no less significant. This Alert highlights select changes enacted by this legislation.

Personal Income Tax

  • Taxpayers may deduct $5,000 of business startup expenses for tax years beginning after December 31, 2013. This change is consistent with the federal deduction already allowed.
  • A tax credit for taxes paid to foreign countries is no longer allowed for tax years beginning after December 31, 2013. The credit allowed for taxes paid to other U.S. states will remain in effect.
  • Provides for the option to capitalize and recover certain allowable intangible drilling costs. Taxpayers may elect to currently expense up to one-third, with the remainder recovered over 10 years, effective for tax years beginning after December 31, 2013. No deduction is permitted for intangible drilling or interest costs in connection with transactions with affiliated entities.

Family Business Exemption to Inheritance Tax

  • Effective for the estates of decedents passing on or after July 1, 2013, the Pennsylvania inheritance tax will not apply to the transfer of a "qualified family business interest" to one or more "qualified transferees," thereby making it easier for businesses to be favorably passed down from generation to generation. To qualify for this exemption:

    • The family business must have been in existence for five years, have fewer than 50 full-time equivalent employees, have a net book value of less than $5 million, be owned as a sole proprietorship by the decedent or be an entity wholly-owned by the decedent or by the decedent and qualified transferees.
    • A "qualified transferee" is the decedent's spouse, lineal descendent, sibling (and the sibling's lineal descendants) and ancestors (and the ancestor's siblings). The exemption is lost if the business does not continue to be owned by a "qualified transferee" for seven years after the death of the decedent.
    • An entity with the principal purpose of managing investments or income-producing assets owned by the entity will not qualify.
    • Requires annual certification to the Department of Revenue that the family-owned business interest qualifies for the exemption, as well as notification to the Department of Revenue within 30 days of any failure to qualify.

Pass-through Entities

  • Effective for all tax years beginning after December 31, 2013, classification of partnership and corporate (S corporation) items of income or credits will be determined at the partnership or corporate level.
  • Beginning in 2014, estates and trusts will be required to withhold Pennsylvania tax on Pennsylvania-source income from non-resident beneficiaries, and nonresident estates and trusts will be required to file a Pennsylvania return if they have Pennsylvania-source income. Under existing law, partnerships and S corporations with Pennsylvania-source income are required to withhold only personal income tax from nonresident partners or shareholders. Under the new law, that withholding requirement is now extended to estates and trusts with nonresident beneficiaries.

Tax Credits

Several new credits have been established, while others have been modified, including:

  • Innovate in Pennsylvania Tax Credit – Effective October 1, 2013, this credit provides a new source of funding for early stage venture capital investment for biotechnology-based projects The commonwealth's economic development partners—Ben Franklin Technology Partners (50 percent), PA Venture Capital Investment Program (45 percent) and other regional biotechnology research centers (5 percent)—will administer the funding for early stage tech investments in Pennsylvania. Credits may first be used in 2017 for taxable years that begin in 2016.
  • Film Tax Credit – Effective July 1, 2013, this credit now requires production companies to withhold Pennsylvania personal income tax (PIT) from the portion of Pennsylvania income paid to individuals through pass-through entities. The Director of the Pennsylvania Film Office is also granted authority to consider other criteria when evaluating and approving credit applications to ensure the maximum employment benefit is realized in Pennsylvania. Tax credits purchased or assigned in 2013 and 2014 can be carried forward to 2014 and 2015, respectively.
  • City Revitalization and Improvement Zones (CRIZ) – Establishes a program for economic development and job creation in third-class cities (at least 30,000 residents), meeting certain criteria where state and local taxes generated in the zones could be used to finance the construction and development of commercial, sports, exhibition, hospitality, conference, office, retail or other community recreational or mixed-use purposes. In addition, the law establishes the approval process for two additional zones beginning in 2016 and approval of one "pilot" zone within a township or borough with a population of at least 7,000. The law relating to the implementation of the CRIZ legislation plan is anticipated to be published by October 31, 2013.

Capital Stock and Franchise Tax

  • The capital stock and franchise tax (CSFT), which was to be phased out for tax years beginning after December 31, 2013, has been extended for an additional two years, with phase-out delayed until 2016. The rates remain low and will decline from the current 0.89 mills in 2013 to 0.67 mills in 2014 and 0.45 mills in 2015. It is eliminated in 2016, effectively ending Pennsylvania's role as the only state in the nation to tax both business income and business assets.

Sales and Use Tax

  • Removes the sunset provision that was due to expire on June 30, 2014, and permanently extends the additional 1 percent Philadelphia sales tax.
  • Establishes a retail sales tax exemption for sales of aircraft parts, services to aircraft and aircraft components (includes fixed-wing powered, tilt-rotor, tilt-wing, glider and unmanned craft).

Corporate Net Income Tax

  • Effective for tax years beginning after December 31, 2013, the commonwealth will adopt market-based sourcing for the determination of receipts allocable to Pennsylvania. The receipt from the sale of a service will be sourced to Pennsylvania for apportionment purposes if the service is delivered to a location in the state, or is based on the relative value of the services delivered to Pennsylvania, and will not be sourced based on where the income-producing activity occurs, as is the measure currently.
  • Effective for tax years beginning after December 31, 2013, special apportionment rules for satellite television providers will be based on the value of equipment owned or rented in Pennsylvania and used in generating, processing and transmitting satellite television services. The apportionment to Pennsylvania will be the Pennsylvania value of the equipment owned or rented by the taxpayer (or entity included in the taxpayer's controlled group) over the value of all such equipment owned and rented everywhere. These apportionment rules apply whether or not such equipment is affixed to real estate.
  • For tax years beginning after December 31, 2014, the new law requires the add-back to income of intangible expenses (including interest expenses directly related to intangible expenses) on transactions with affiliated entities. There are a few significant exceptions, including an exception for arm's-length transactions that do not have the avoidance of tax as the principal purpose, effectively closing the Delaware Loophole, which is a tax avoidance practice utilizing the transfer of assets to Delaware holding companies resulting in tax at lower rates.
  • Increases the Net Operating Loss (NOL) cap from $3 million or 20 percent of a company's tax liability to $4 million or 25 percent of a company's tax liability in 2014 and $5 million or 30 percent in 2015.
  • In order to encourage greater compliance with the tax law, this law establishes a new penalty of $500, plus 1 percent for every dollar of tax greater than $25,000 as a non-filing penalty for C corporations.

Realty Transfer Tax

  • Beginning in 2014, the law clarifies the definition of "real estate company" to include a corporation or association that owns a direct or indirect interest (a tiered structure) in a real estate company, comprising 90 percent or more of the fair market value of its assets. The law also changes the criteria for determining when 90 percent or more of the total ownership interest in a real estate company has been deemed to be transferred, and thus triggering the transfer tax.
  • Establishes a new exemption for certain real estate transfers to volunteer emergency services agencies, volunteer fire companies or volunteer rescue services. This new exemption is retroactive to transfers that occurred on or after November 1, 2011.

Tax Appeals Reform

  • Effective April 1, 2014, the bill reorganizes and reduces the existing Board of Finance and Revenue from six to three members, consisting of the State Treasurer (or designee) and two members nominated by the Governor and approved by State Senate who must either be attorneys or CPAs with substantial knowledge of Pennsylvania tax law.
  • The Department of Revenue will be entitled to present oral and documentary evidence before the Board by the taxpayer (petitioner) and the Department of Revenue.
  • Additionally, the Board may order a compromise settlement with agreement of both parties.


  • Citation Authority – Effective immediately, a person who does not pay or who underpays employer withholding tax or fails to file an employer withholding return or report may be fined by the Department of Revenue; and in some instances, the violators may be imprisoned.

If you would like more information about any of the topics above or would like to discuss your own unique situation, please contact John C. Friskey or Steven M. Packer in the Tax Accounting Group or the practitioner with whom you are regularly in contact.

This article is for general information and does not include full legal analysis of the matters presented. It should not be construed or relied upon as legal advice or legal opinion on any specific facts or circumstances. The description of the results of any specific case or transaction contained herein does not mean or suggest that similar results can or could be obtained in any other matter. Each legal matter should be considered to be unique and subject to varying results. The invitation to contact the authors or attorneys in our firm is not a solicitation to provide professional services and should not be construed as a statement as to any availability to perform legal services in any jurisdiction in which such attorney is not permitted to practice.

Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets. Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets. The Duane Morris Institute provides training workshops for HR professionals, in-house counsel, benefits administrators and senior managers.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions