Pennsylvania Administratively Sets Bright-Line Economic Nexus Threshold for Corporate Net Income Tax

Morgan Lewis

Morgan Lewis

The Pennsylvania Department of Revenue issued a bulletin announcing its view that the US Supreme Court’s sales and use tax decision in Wayfair v. South Dakota applies equally to corporate net income tax and authorizes the department to administratively impose a bright-line economic nexus standard of $500,000 in sales to customers in Pennsylvania.

In a corporate tax bulletin (Bulletin)[1] issued on September 30, the Pennsylvania Department of Revenue (Department) announced that for tax periods beginning on or after January 1, 2020, it will impose a bright-line economic nexus standard for Pennsylvania’s corporate net income tax (CNIT).[2] The Bulletin says that “the Department will deem there to be a rebuttable presumption that corporations without physical presence in the state, but having $500,000 or more [in sales]” to customers in Pennsylvania are subject to CNIT.[3] The Department notes that protection under Public Law 86-272 still exists for some taxpayers, notwithstanding that they may otherwise have $500,000 in sales to customers in Pennsylvania.

While the Department’s administrative guidance does not carry the force of law, this new policy raises several questions and concerns, including these three significant questions:

  • Is the Department’s new policy valid under the Uniformity Clause of the Pennsylvania Constitution?[4] Pennsylvania judicial precedent makes clear that the Uniformity Clause of Pennsylvania’s Constitution requires that the Department enforce the laws uniformly.[5] In the Bulletin, it appears that the Department is saying that while it is authorized by the US Constitution and Article IV of the Pennsylvania Tax Reform Code to impose economic nexus, it will only enforce the law against taxpayers with at least $500,000 of sales to customers in Pennsylvania. We would query whether an across-the-board application of economic nexus here would violate the Commerce Clause.
  • Does the Bulletin exceed the Department’s rulemaking authority by attempting to usurp the powers of the General Assembly? Setting a bright-line economic nexus threshold for CNIT is likely the exclusive province of the legislature. The General Assembly has, as of yet, elected not to enact such a threshold.
  • Is the Department’s application of Wayfair[6] to CNIT valid? Wayfair was a sales tax case—not a corporate net income tax case—and the US Supreme Court did not extend its rationale in Wayfair to other tax types. The Supreme Court has refused to hear several income tax economic nexus cases favoring the states.[7] While many other states do impose a bright-line economic nexus for CNIT, Wayfair is generally not the basis for their authority. There are meaningful differences between the nature of and purpose for a sales tax and an income tax. It is not a foregone conclusion that what holds true for a sales tax also holds true for an income tax. In fact, the Department’s own bright-line economic nexus standard for sales tax is different than the standard for CNIT.[8] In the Bulletin however, the Department cherry-picks the Supreme Court’s language from Wayfair and treats these two taxes as if they are necessarily interchangeable for nexus purposes.

We will continue to monitor this issue and update our clients and readers as new information becomes available.


[1] Pennsylvania Corporation Tax Bulletin No. 2019-04 (Sept. 30, 2019).

[2] Id.

[3] Id.

[4] Pa. Const., Art. VIII, § 1.

[5] Commonwealth v. Molycorp, 392 A.2d 321 (1978).

[6] Wayfair v. South Dakota, 138 S. Ct. 2080, 201 L. Ed. 2d 403 (2018).

[7] See, e.g., Capital One Bank v. Comm’r of Revenue, 899 N.E.2d 76 (Mass. 2009), cert. denied, 2009 WL 733877 (2009) (No. 08-1169); Tax Comm’r of State v. MBNA Am. Bank, N.A., 640 S.E.2d 226 (W. Va. 2006), cert. denied, 127 S. Ct. 2997 (2007) (No. 06-1228); J.C. Penney Nat’l Bank v. Johnson, 19 S.W.3d 831 (Tenn. Ct. App. 1999), cert. denied, 531 U.S. 927 (2000) (No. 00-205).

[8] See Pennsylvania Sales and Use Tax Bulletin No. 2019-01 (Jan. 11, 2019).

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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