Major PA Tax Bill Passes: Franchise Tax is Back! Market Sourcing has Arrived; Addbacks Too


After months of negotiations and bargaining surrounding Pennsylvania’s budget, the House and Senate passed major tax code changes Tuesday (in House Bill 465). The bill is now on its way to Governor Corbett’s desk for signature.

The bill contains numerous changes, all of which will be discussed during our July 15 teleseminar. These changes include:

  • Add-back of Intangible Expenses: The new bill requires the add-back 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.
  • Market Sourcing: The new bill changes the sourcing rule for receipts from the sale of services to the location where the service is delivered. However, the bill leaves in place the income–producing activity / cost-of-performance provision currently in place for certain sales.
  • Increase in the NOL Cap: The new bill increases the NOL cap to the greater of $4 million or 25% of taxable income for 2014, and increases it to the greater of $5 million or 30% for 2015. (Of course, Reed Smith’s position continues to be that any NOL cap violates the uniformity requirement of the Pennsylvania Constitution.)
  • Rebirth of the Franchise Tax: The new bill brings back the capital stock / franchise tax for two more years. While this tax was set to expire at the end of 2013, the new bill brings it back at a rate of .67 mils for 2014 and .45 mils for 2015.

In addition, the new bill revamps the current administrative appeals process at the Board of Finance and Revenue (drastically altering the Department of Revenue’s role), and amends the Bank Shares Tax.

Click here to find out more and to register for our July 15 teleseminar.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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