United States: Pennsylvania Enacts Tax Bill As Part Of Budget Package

Pennsylvania has enacted tax law changes projected to generate $752M in new revenue. The changes include severe restrictions on the vendor sales tax discount for timely filing, imposition of sales tax on digital downloads and software maintenance, and changes to the bank shares tax.

Yesterday, July 13, the General Assembly passed and Governor Wolf signed into law Act 84—tax code changes that are estimated to generate a net $752 million in new revenue.1 The act includes a number of changes that seem simple, but could have a huge impact on taxpayers.

Vendor Sales Tax Discount Capped Before Act 84, vendors who timely reported and remitted sales tax collections to Pennsylvania were permitted to discount their sales tax liability by 1%. For large retailers, this discount produced a large benefit for timely filing. Effective for monthly sales tax returns due August 20, 2016, this benefit is severely limited.

Under Act 84, the discount is now the lesser of 1% of the sales tax collected or (1) $25/return for monthly filers; (2) $75/return for quarterly filers; or (3) $150/return for semiannual filers. In other words, going forward, the discount is capped at $300 annually. For large retailers, this means the loss of a multimillion-dollar benefit. In fact, this change alone is expected to generate more than $55 million annually in new revenue.

There could be a challenge to this cap on the timely filing discount, so it might be worth discussing your options.

Digital Downloads and Software Maintenance Now Taxable Digital downloads were previously not treated as taxable tangible personal property by the Department of Revenue. Act 84 expressly includes digital downloads (such as apps, games and books), as well as video streaming, as enumerated taxable tangible personal property, effective August 1, 2016.

Act 84 also explicitly lists canned computer software as taxable tangible personal property, which is consistent with the holding of the Pennsylvania Supreme Court in Dechert LLP v. Commonwealth.2 Notably, Act 84 also characterizes software maintenance, updates and support for canned software as taxable tangible personal property. This treatment is in direct contradiction with the court's decision in Dechert.

Bank Shares Tax Act 84 makes a number of changes to the Bank Shares Tax. For example, Act 84 increases the tax rate from 0.89% to 0.95%, effective for the January 1, 2017 tax period (that is, the tax return filed in 2017 based on equity and apportionment in 2016). Act 84 also "clarifies" that the goodwill deduction applies to the computation of both the bank shares tax base and the deduction for U.S. obligations. (In Reed Smith's view, this point needed no clarification—the statute always allowed a deduction for goodwill from the tax base.) The act also permits taxable institutions to exclude the equity of Edge Act subsidiaries (formed pursuant to 12 U.S.C. § 611) from the bank shares tax base. This exclusion will be phased-in: starting with a 20% exclusion for calendar years beginning on or after January 1, 2018; and increasing to a 100% exclusion for calendar years beginning on or after January 1, 2022.

Act 84 also makes changes to the receipts-factor for computing the Bank Shares Tax. Specifically, it ties the "total receipts" included in an institution's receipts-factor denominator to all income amounts reported on the institution's call report. This is a change from the prior law, which computed the receipts-factor on a separate company basis. Act 84 also "clarifies" that an institution with receipts from both investment and trading assets can use Method 1 to compute its receipts-factor.3 Again, like the "clarification" for goodwill, Reed Smith's view is that no clarification was necessary because the statute, before Act 84, allowed all banks—whether they had both investment and trading assets or not—to use either method.

Changes to Corporate Tax Returns and Amended Returns

Filing Deadline Act 84 extends the deadline to file the Pennsylvania corporate tax report to May 15. As a consequence, the Pennsylvania corporate tax return filing deadline will once again be 30 days after the federal filing deadline. (This change was necessary to take into account the change to the federal corporate income tax filing deadline to April 15 starting in 2016.)

Amended Returns In response to a recent case highlighting some problems with filing amended returns in Pennsylvania, Act 84 now requires the Department of Revenue to act on an amended return within one year of the amended return filing. If the Department fails to act on an amended return within that one-year period, it will be deemed accepted by the Department. Act 84 also allows a taxpayer to file a petition for review with the Board of Appeals, if it disagrees with the Department's action on an amended return. That petition is due 90 days from the mailing date of the Department's notice.

It is important to remember that even under Act 84, an amended return is not a substitute for a petition for refund with the Board of Appeals, because an amended report may not be filed if it "takes a position that is contrary to law or published department policy." As a consequence, a taxpayer that files an amended return runs the risk that the Department will assert that the return is not valid, because it takes a position that is contrary to law or published department policy and, thus, is not covered by the deemed acceptance rule.

Additionally, filing an amended return extends the statute of limitations for assessments by one year from the date the amended return is filed. In contrast, filing a petition for refund with the Board of Appeals does not extend the statute of limitations for assessment.

Due to the restrictions on amended returns, a taxpayer seeking a refund should still file a petition for refund with the Board of Appeals, rather than filing an amended return.

Other Notable Changes

  • Tax Amnesty Program Act 84 authorizes a tax amnesty program allowing delinquent taxpayers to come forward and receive the benefit of: (1) a five-year lookback (instead of indefinite for non-filers); and (2) abatement of half of the interest owed. The program date is yet to be determined, but it will be before June 30, 2017.
  • Tobacco Tax Act 84 increases the tax on cigarettes and subjects e-cigarettes, smokeless tobacco products and roll-your-own cigarettes to tax.
  • Table Games Tax Act 84 increases the tax on gross table game revenue by 2 percentage points.
  • Lottery Winnings Taxable All lottery winnings are now subject to the personal income tax. This change is retroactive to January 1, 2016, and is estimated to bring in $16 million in annual revenue. A similar retroactive provision is being challenged in New Jersey.4

If you have questions about Act 84 and its effect on your business, please contact one of the authors of this Alert or the Reed Smith attorney with whom you usually work.

Footnotes

1 Act 84, House Bill 1198 of 2015-16.

2 606 Pa. 334 (2010).

3 The Bank Shares Tax allows a bank to apportion receipts from investments and trading using Method 1 (using the fraction of other receipts that are sourced to Pennsylvania), or Method 2 (using the fraction of investment and trading assets that are in Pennsylvania). 72 P.S. § 7701.4(3)(xiii)(B). The Department's previous position was that a bank could use Method 1 only if it did not have receipts from investment assets. See Information Notice Bank Shares Tax 2014-01 (April 14, 2014).

4 See Harrington v. Director, Div. of Taxation, NO. 009529-2011 (Mar. 2, 2015) (finding that state's advertisement that lottery winnings are not taxable were part of lottery contract with winners).

This article is presented for informational purposes only and is not intended to constitute legal advice.

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.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.