PA Act 43 of 2017

While federal tax reform is still being debated, Pennsylvania has enacted several tax changes in an effort to close the state’s multi-billion dollar budget shortfall.  On October 30, 2017, House Bill 542 was signed into law as Pennsylvania Act 43 of 2017 which will generate revenue for Pennsylvania’s 2017/2018 budget.  The following is a summary of the significant highlights.

Imposition of Sales Tax Collection on Internet Platforms

Pennsylvania becomes the fourth state to impose tax collection or reporting obligations on internet platforms (such as Amazon or eBay) and individuals who sell through these platforms.  Sellers of products on the internet not maintaining a place of business in Pennsylvania and not collecting Pennsylvania sales tax who have made sales of at least $10,000 into Pennsylvania in the previous calendar year, must file an election by March 1, 2018 opting either to begin to collect tax or commit to sending use tax notices with each sale.  Those sellers opting to send notices must also send an annual summary of purchases both to the seller and to the Department of Revenue.

For those opting to collect sales tax, the new provisions require collection to begin by April 1, 2018 for tangible personal property.  However, the effective date is delayed until April 1, 2019 for digital goods such as electronic copies of books, canned software, music and similar items.

Clarification of Sales Tax on Help Desk or Call Center Support

Following a provision enacted in 2016 imposing the sales and use tax on digital downloads, maintenance and updates, HB 542 clarifies that help desk and call center support are exempted from sales tax if those services are separately invoiced from the canned software.

Nonresident Withholding

Entities making rent and royalty payments on Pennsylvania property of at least $5,000 annually to any one nonresident individual or pass-through entity with a nonresident member are now required to withhold income tax from such payments.  With respect to payees who receive less than $5,000 annually from the taxpayer, withholding is optional.

Corporate Net Operating Losses

Recently, the Pennsylvania Supreme Court ruled that the fixed-dollar cap on the use of the corporate net loss carryforward deduction violated the Uniformity Clause of the Pennsylvania Constitution.  HB 542 provides that for taxable years beginning after December 31, 2017, the fixed-dollar cap is removed and the net loss carryforward deduction which is currently limited to 30% of a taxpayer’s income for the 2017 tax year, is increased to 35% of a taxpayer’s income for the 2018 tax year, and 40% of taxable income for the 2017 tax year and thereafter.

Addition of Qualified Manufacturing Deduction

Manufacturers can take advantage of a newly created deduction allowing a qualified business to deduct 5% of its capital investment from their corporate net income tax liability if it invests at least $100 million during the first three years after beginning to construct or refurbish a manufacturing facility in Pennsylvania.  The deduction would be available to each qualifying business for five years and cannot exceed 50% of the corporation’s tax liability.  Interested businesses can contact the Department of Community and Economic Development after the effective date of December 29, 2017.

Shortened Tax Appeal Period

The period of time a taxpayer has to file a petition for reassessment, review or adjustment with the Board of Appeals is reduced from 90 days to 60 days after the mailing date of the notice of assessment.  In addition, the time period for appeal to the Board of Finance and Revenue by a taxpayer is reduced from 90 days to 60 days after the mailing date of the notice of decision from the Department.  This change applies to petitions for refunds, petitions for reassessments, and petitions for redeterminations filed with the Department on or after December 29, 2017.

New Fireworks Tax 

HB 542 imposes a new tax at the rate of 12% on the sale price of consumer fireworks suitable for use by the public.  This 12% tax will be in addition to the sales and use tax already imposed on such sales.  The new fireworks tax is effective October 30, 2017.

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Since these new Pennsylvania tax provisions affect individuals and business taxpayers, please contact us regarding any questions you may have and steps you should take now.