United States: Pennsylvania Senate Passes Tax Bill

Today, the Pennsylvania Senate passed an amended version of House Bill 542 (HB 542), which includes tax code changes that are estimated to generate $571 million in new revenue. (A brief overview of some of the noteworthy changes is included below.) HB 542 passed the Senate with bipartisan support, and our understanding is that Governor Wolf also supports the bill. However, before the bill can move to the Governor and become law, the Pennsylvania House will have an opportunity to either accept, reject, or further amend the bill. The House's next scheduled session is not until September 11, but they could be called back earlier for a special session.

Marketplace Provider Sales Tax Requirements

HB 542 would require marketplace providers to collect sales tax on each sale that they facilitate for a marketplace seller. The Senate Appropriations Committee estimated that in the 2017/2018 fiscal year alone, this provision would generate $43.5 million in new revenue. This provision follows on the heels of similar provisions seeking to impose sales and use tax obligations on marketplace providers enacted by Minnesota and Washington earlier this year. [See our prior alerts here and here.]

Remote Seller Study

HB 542 also requires that, if no federal legislation regarding remote sellers is enacted by December 31, 2018, Pennsylvania's Independent Fiscal Office, along with the Department of Revenue (the "Department"), must complete a study to determine the legal and fiscal implications of mandating notice requirements for remote sellers.

Net Loss Changes

HB 542 amends Pennsylvania's cap on net loss deductions, contingent on the Pennsylvania Supreme Court issuing a decision that "all or a part of the net loss deduction ... has been deemed unconstitutional...." See our prior alert on the Nextel Communications case, in which the Pennsylvania Commonwealth Court found the current net operating loss cap in violation of the Pennsylvania Constitution here.

The amendment would be effective beginning with the 2017 tax year, and would remove the flat dollar limitation and replace it with a limitation based on a percentage of the taxpayer's taxable income. In 2017, that percentage would be 35%, and in 2018 and thereafter it would be 40%. Interestingly, the legislation would be effective only when the Department files a notice of the decision in the Pennsylvania Bulletin. Thus, the Legislature has delegated to the Department some control over the timing of the effective date of the change, which is unusual and which may be constitutionally suspect. Further, the legislation would only be effective if the court's decision "deems" the "deduction" unconstitutional. Thus, it is unclear if the amendment would be triggered by a decision invalidating the limitation, not the deduction itself. And it is unclear if the amendment would be triggered by a decision affirming in Nextel Communications since that decision did not "deem" any statutory provision "unconstitutional," but rather held that the current net operating loss was unconstitutional as applied to Nextel Communications' particular facts.

Imposition of Severance Tax (in addition to Impact Fee)

HB 542 would impose a new severance tax on the extraction of natural gas from unconventional wells. The rate would range from 1.5–3.5 cents per thousand cubic feet of natural gas severed, and would be tied to the average price of natural gas for a particular year (based on the same schedule currently used for the Impact Fee). Notably, under this bill, the existing Impact Fee imposed on natural gas producers would remain intact, which would result in producers paying both the Impact Fee and the new Severance Tax. This would be a major change. Recall that when the Legislature enacted the Impact Fee in 2012, it included a statutory provision that would automatically repeal the Impact Fee in the event a Severance Tax were enacted and imposed, in order to protect producers from this exact situation. HB 542 removes that protection.

Gross Receipts Tax on Natural Gas

HB 542 would bring back the imposition of a 5.7% gross receipts tax on sales of natural gas. Pennsylvania imposed a gross receipts tax on natural gas until 1999, when it was repealed in connection with the deregulation of Pennsylvania's natural gas industry. HB 542 would essentially bring back that same tax. The tax would be imposed on receipts of natural gas supply companies and natural gas distribution companies from "sales and delivery of natural gas to retail gas customers within this Commonwealth."

Gross Receipts Tax Increase on Telecom and Electric Companies

HB 542 would increase the gross receipts tax rate on telecommunications companies from 5% to 6%, and would increase the gross receipts tax rate on electric companies from 5.9% to 6.5%.

Help Desk and Call Center Support

HB 542 would reverse the Pennsylvania Department's position that sales of help desk and call center support are sales of tangible personal property subject to sales tax. (See our prior alert here.)

Under HB 542, the definition of tangible personal property for sales tax purposes is amended to include "support" relating to purchases of canned software, with the exception of "separately invoiced help desk or call center support." To the extent support relating to canned software is not separately invoiced, but is bundled with other "support" services, such services would be taxable. HB 542, however, does not define or clarify what "support" entails, leaving the term open to the broad interpretation articulated by the Department in its recent guidance.

Electric Grid Virtual Financial Transactions Tax

HB 542 would impose a 5% gross receipts tax on all electric grid virtual financial transactions in the electricity market administered by the regional transmission organization (PJM). The tax would be imposed on, and owed by, the entity initiating the electric grid virtual financial transaction. However, the tax would be remitted to the Department by PJM.

An "electric grid virtual financial transaction" is defined as "an increment transaction, decrement transaction or an up-to-congestion transaction." This tax seeks to reach the derivative electricity trading on the electric grid energy market administered by PJM, which is headquartered in Pennsylvania.

Tax Appeals Process Reform

HB 542 would also drastically reform the Pennsylvania tax appeals process. Specifically, the bill provides for:

  • A Shortened Appeal Period. The period for appealing a Notice of Assessment would be reduced to 60 days (from 90 days), and the period to appeal a decision from the Board of Appeals to the Board of Finance and Revenue would also be reduced to 60 days (from 90 days).
  • Unilateral Department Authority to Hold Cases in Abeyance. The Department would be granted unilateral authority to hold a case in abeyance pending the outcome of another case that the Department deems to involve a similar issue.
  • Compromise Payments Due within 60 Days. Under HB 542, if the taxpayer and the Department reach a compromise regarding a pending appeal whereby the taxpayer will owe the Department an amount, the taxpayer must remit full payment within 60 days of the compromise. If full payment is not remitted within that time frame, the compromise would be voided and a decision denying the taxpayer's claim would be issued.
  • New Small Claims Procedure. HB 542 would introduce an optional summary claims procedure for claims not exceeding $6,000.

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.