City of Philadelphia Ends Temporary COVID-19 Tax Policies

Blank Rome LLP

Blank Rome LLP

Now that the COVID-19 pandemic has dissipated, states and localities have begun to end temporary tax policies that were meant to provide relief to some taxpayers from the restrictions imposed by government during the pandemic. The City of Philadelphia has released new guidance explaining the termination of temporary policies under several local business taxes, including the effect of employees working from home on nexus. “Business Income and Receipts Tax (BIRT), Net Profits Tax (NPT) Nexus and Apportionment Policies Due to COVID-19 Pandemic” (Phil. Dep’t of Rev., June 25, 2021); “Update to Philadelphia Use & Occupancy Tax Guidance during COVID-19,” (Phil. Dep’t of Rev., June 16, 2021).

Business Income and Receipts Tax (“BIRT”) and Net Profits Tax (“NPT”)

The BIRT is a net income and gross receipts tax imposed on individuals, partnerships, limited liability companies, and corporations engaged in business within the City of Philadelphia.

Nexus. An out-of-Philadelphia business has nexus for BIRT purposes if it has one or more employees who conduct business activities in the city. During the COVID-19 pandemic, the Philadelphia Department of Revenue (“Department”) announced that it would temporarily waive the BIRT nexus threshold in the case of employees working from their homes in Philadelphia for out-of-Philadelphia businesses solely because of the pandemic.

By its terms, that temporary nexus policy was scheduled to expire no later than June 30, 2021, and the Department has announced that the policy is no longer in effect as of July 1, 2021. Consequently, an out-of-Philadelphia business that continues to have employees working from their homes in Philadelphia after June 30, 2021 will have nexus for BIRT (and NPT) purposes based solely on the employee’s activities.

Taxable Receipts from Performance of Services. The Department had also previously announced that where a Philadelphia non-resident employee who had previously worked at a business location in Philadelphia was temporarily working from the employee’s home outside the city solely because of the COVID-19 pandemic, the Department, under principles of alternative apportionment, “deemed” the employee’s services to be performed within Philadelphia for purposes of sourcing receipts under the BIRT and NPT. For a Philadelphia resident employee who had worked at a business location outside the city before the pandemic, and who was temporarily working from home in Philadelphia solely due to the pandemic, receipts from the employee’s services would not be sourced to Philadelphia. The Department has announced that these temporary receipts sourcing rules ended with the expiration of the governor’s emergency stay-at-home order on June 10, 2021.

Use and Occupancy Tax

The City of Philadelphia use and occupancy tax is imposed on commercial tenants based on the assessed value of the real property located in the city, for the use or occupancy of the premises for business purposes. Owners or landlords are responsible for collecting the tax from tenants and remitting the tax to the city.

The Department previously issued pronouncements that businesses ordered to close by the governor and mayor generally would not be subject to the use and occupancy tax during that period. Restaurants had been given use and occupancy relief because of restaurant occupancy limitations. On June 2, 2021, with the termination of all Philadelphia capacity limits, that emergency relief expired.

Similarly, the Department previously announced that businesses that had been ordered by the mayor to operate remotely were not subject to the tax during that period. Effective April 4, 2021, mandatory remote work for non-essential workers ended in Philadelphia. As a result, the Department announced that those businesses again became subject to the tax.


The long-term effects of the COVID-19 pandemic on employer and employee work practices remain unclear, but the likelihood of increased remote work arrangements will undoubtedly cause businesses to evaluate issues such as potential nexus exposure, how services conducted remotely should be sourced, and how businesses should withhold state and local income taxes for employees working remotely. This is likely to raise critical questions in New York State, where the longstanding “convenience of the employer” regulations—which have previously been upheld by the New York courts—have significantly limited the ability for New York nonresident employees to source income outside New York.

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