Industry sign banking pennsylvania iou now
great Thank You Tara good afternoon everybody and as Tara said thank you for joining us today for the Pennsylvania tax update there's so many topics right now that we could talk about it's kind of an exciting time in the state and local tax world with all the income tax reform that's going on and implications for states and as well as on the sales tax side with the recent Supreme Court decision and Dakota versus Wayfarer but today our focus is going to be on Pennsylvania and what kind of steps need to be an overview of what needs to be done in order to be in compliance with the tax laws of Pennsylvania so our presenters today are Stacie Roberts Stacey is a state and local tax senior manager out of our Denver office Laura Robichaud is a statement attack senior manager out of our Phoenix office and I am Jennifer Edwards state local tax manager and I'm located in Sioux Falls so as I mentioned today we're just going to want to touch on areas of compliance areas that we see questions on in regards to our clients that are looking to maybe expand their business or their making sales in to Pennsylvania what kind of when if implications does it have for them from a sales and use tax perspective from the income tax perspective what do they need to to do to - it started with that business being compliance or maybe get themselves in compliance if they've been doing business there so I'm gonna start off by talking about registering a business in the state when to register what are the steps who needs to have a and who needs to have a sales new sex license in Pennsylvania Laura will then move into more in-depth on the sales tax side she's going to talk about Nexus various taxes that are out there sourcing rules various types of sellers that are recognized in pencil and then she'll also talk about some recent tax rulings to consider on the sales and use tax side Stacey will then talk about moving to income tax to talk about different in Pennsylvania context for businesses talk about Nexus the corporate tax regime talk a little bit about apportionment what does that mean for entities talk a little bit about pass-through entities and some of the impact on those types of entities touch on tax some text reform issues that you also talked about some local take local income taxes in the different cities Philadelphia Pittsburgh it cetera and then I will wrap up but just what do you do if you are no longer going to be doing business in Pennsylvania if you had registered for sales and use tax what do you need to do to cancel that registration so let's started here by just registering for Pennsylvania sales and use tax so who needs to be licensed well CC in and Laura we'll talk more about Nexus and kind of the nuances of Nexus for the the different types of tax so but just to just as a quick fYI Pennsylvania is a state that does still have a physical presence requirement or for Nexus so that means said who needs to be licensed of any and every person fiduciary partnerships corporations or any entity that are making taxable sales of tangible personal property or taxable services in Pennsylvania a must register for sales and use tax license when we talk about physical presence in the state that would be they have a business location in the state employer have employees in the state then you have inventory or they store property of some sort sort in the state that would be enough to be given physical presence if you have a requirement to be licensed and you don't need don't do that license or don't register and you make sales there is a fine that can such a business could face if they're not registered I'm out-of-state vendors also I may have to be making taxable sales in Pennsylvania are required to register for sales and use tax license and we'll touch on that a little more detail in a few minutes here but also if you are making purchases of items that there are taxable purchases of items that are going to be used in the state of Pennsylvania and no sales taxes was charged on that purchase then use tax is due and in order to remit that use tax on the form PA why do you need to be registered with the state of Pennsylvania so quickly just want to touch on the types of of sellers in Pennsylvania because Pennsylvania does now they they did enact legislation that puts a taxing requirement on out-of-state or types of vendors that do not have a physical presence necessarily in the state so we have marketplace the facilitator and that it would be somebody that just facilitates a sale at retail by advertising or listing the tangible property or the taxable service for sale they collect the payment from the customer and transmit the payment to the seller in most cases that would be they would have a relationship with the marketplace seller and that is just the the the seller has an agreement with a marketplace facilitator but the seller is actually the one who is selling the product a refer is something that has an agreement with the marketplace seller our remote seller they list they basically link or send the purchaser the customer to the seller to the sellers website or whatever their medium is or selling their products and then the seller actually completes the transaction and then a remote seller is essentially what you know as the title says it would be some seller a company that is doing business making sales to customers in Pennsylvania but does not have any physical or any place of business in the state so I'm gonna just first go to this slide um so an out-of-state business would they need a sales tax license in an out-of-state business could still have some kind of a physical presence obviously they have a physical presence they would need assessed tax license but smother wait times they might have a requirement to have a sales tax license if they have a contractual relationship with individual or other entity physically located in Pennsylvania of asset sales regular regularly one of these phillipe refer back to and what you would think of as the refer or the marketplace facilitator but then also if you have inventory in the state so potentially selling through Amazon FBA of inventory in the state or add some other property stored in the state that is another example when an out-of-state business would need to be registered but also they wanted as I mentioned Pennsylvania has passed legislation its social but they're trying to do is level the playing field between out-of-state retailers and in-state retailers so they've established this marketplace sales tax collection notice and reporting requirements in this requirement was effective March of 2018 so what this legislation did is it gave marketplace facilitators refers and remote sellers an option to collect an immense sales tax so either to register and clicked internet sales tax or they could choose to just notify their customers that use text may be due and then along with that they also have a requirement to report to the state annually on their Pennsylvania customers such as their name the volume will say the quantity of sales and so forth and the threshold for this is this reporting requirement may sound similar there's other states that have have also put in these reporting requirements in place the threshold for Pennsylvania's rules are $10,000 in Pennsylvania sales during the last 12 months that is the threshold that you'd need to either have to register to collect and remit sales tax or you follow the use tax and reporting requirements and just as a as an FYI the reporting requirements for failing to to comply those penalties can be very very stiff I believe there's a potential $20,000 penalty if you are not complying with those with those rules so it is definitely something to keep in mind if you are an out-of-state retailer making sales into Pennsylvania so I could have determined that yes you do meet those requirements what do you need to do to get registered and the key piece here is that you should always do the application and get the license before making any taxable sales in the state of Pennsylvania Pennsylvania sales tax license is must be renewed every five years and it's an online registration that you can do the website is right there if you go to the website you click on that select register online I'm going to create an account used to your federal identification number as the application ID and get that set up and go through that there is also a paper form available if you don't want to go through the online process the online process does is more efficient and does get the registration done much quicker and that process can be used if you're registering a new business if you are acquiring an existing business or if you're even just adding additional certain taxes or services so that registration can be done that that form can be used for other form or tax types other than just sales and use tax but that is the form that you would need if you're required to be registered with the state and so just quickly I want to touch on the South Dakota versus wayfarer the Supreme Court decision everyone's probably well aware of that decision that came out last Thursday it essentially all returns the cool decision and physical presence requirement I'm in states in order to require a state to collect sales and use tax the states or the excuse me the Supreme Court cited in favor of South Dakota and their rule says if you have a hundred thousand dollars of sales or two hundred separate transactions into the state of South Dakota that is enough to give that seller Nexus and then require them to collect sales tax from their customers in the state so essentially with this decision our retailers may now be required to collect in the mid sales tax where they have no physical presence there are a number of states that had some similar laws hasta South Dakota's with a hundred thousand dollars in sales or two hundred separate transactions so far North Dakota is the only state that has come out with a definitive start date of when you have to start collecting they they are saying it is October 1st 2018 or 60 days after the entity reaches that threshold whichever is later just something to keep in mind if you're making sales in North Dakota but just at this point there's still a lot of information that we're waiting for states are reviewing the decision to just determine how this will impact them and how and when they want to implement and put their laws in effect so we will continue to monitor this this is not going out and panic and quickly register in every state there's there's a lot more to come on this so we will be monitoring that i Bailey is working on putting a presentation together on this decision so that hopefully in July at the latest August we will be watching be watching for that and you will come out with more information but at this point we just want to make everybody aware of that and from the standpoint that pence Vania has reporting in use tax or they had the option to to start collecting and remitting if the sales are ten thousand or more into Pennsylvania so their threshold is actually significantly lower than the South Dakota threshold that was ruled on in the Supreme Court decision so that that will go to our first polling question use tax notice and reporting requirements are being adapted by more states the consequences for not complying can be significant how aware are you of the states that have reporting requirements one I'm very aware and I've taken steps to be in compliance I've heard about it but I'm not taking any action to become compliance or this is the first thought that you're hearing about it all right we have some results there Tara well good looks like the majority only star aware and have taken taken steps so that that is great news because as I mentioned those those penalties for not complying can be significant already with that I will pass it over to Laura thanks Jennifer hopefully you can hear me or everybody can hear me so um I'm gonna talk about sales tax which you know this next slide the Nexus slide you know if we do any more these states are probably gonna have to switch this up you know given some of the changes that Jennifer had mentioned with the Wayfarer case but as of right now for Pennsylvania they have pretty much the same nexus rules as a lot of the other states and and this is something where depending on what kind of industry you work in is going to impact you differently so for example you know we have a lot of a lot of the clients that I particularly work with are either construction or retail or sometimes sort of software company um you don't realize that you know utilizing third parties or you know me maybe somebody comes into the state to execute some contracts anytime you enter the stage to do anything you could potentially create a nexus for yourself now I'm not talking about you know the onesie twosie x' where you go in and you know maybe it was oh it was an outlier of your regular business I mean if you when you're doing your annual review with your your sales by state and you look at man we really did some revenue in Pennsylvania or we sold a lot of products into Pennsylvania but we don't we're not license there that's something that I would really consider looking into more in-depth so as this wave fair air situation begins to evolve and we anticipate in see more and more states coming forward with well now this creates Nexus you know cuz physical presences might be more of a thing of the past even though the states aren't quick to move on everything this listing is very general listing is gonna change so just as of right now this is what it is but I wouldn't bank on this I would just say that it's possible that it's gonna change and this isn't just for Pennsylvania this is also applicable to other states too PA has some pretty normal different types of sales tax they have well of course sales and use tax but like many other states they have like a hotel occupancy tax sometimes they call it short-term rental tax or something and anytime there's any hospitality you'll find that there's an additional ad tax and there might even be one more layer at the local municipality level of an ad tax on top of that they also have a fireworks tax I don't know if we have any if you guys deal in the fireworks industry but they do have that tax just for that it's very similar to the liquor and tobacco tax they have a rental tax and they also have what they call pta public transportation assistance taxed so it's not as many I think the last day we did it was Florida and they had a ton this is pretty normal and what we would expect to see from a state like Pennsylvania so you know just be cautious of you know if you're if you're in the telecommunications industry usually there's always an additional 9-1-1 text that's attached so that i didn't include that because that's pretty normal but it just pretty high level that's what we have just the sales tax use tax those are the ones i would be worried about we also kind of want to touch a little bit on you know what's taxable in Pennsylvania I I hear all sorts of things about medical supplies drop shipment stuff digital products they actually Pennsylvania Arizona I think it's Nebraska they are one of the very few states that has what we call taxability matrix so you can go online and look and it breaks everything out by product that's actually really helpful if you're in the hotel industry or you are a builder or constructor of hotels I put mushroom farming on here just because I thought it was so unique like that they would actually list that on their website is one of their top things so apparently mushroom farming is exempt but there are some things with mushroom farming that are not exempt Pennsylvania is one of the very few states and I'm gonna go into this when I talk about some of the recent case studies but they tax digital products and digital products now are we see or becoming more and more common just because that's I mean who doesn't get stuff on their smart film everybody does they it's just you know then there's software that's attached to that too so it was the software considered a digital product so this is pretty normal if you are if you happen to be someone who is a retailer of medical supplies just like an
other state there are some devices that are considered exempt however there are there's a lot of things that are going to be considered taxable so if you're selling what we call TPP which is tangible personal property and services because a lot of services are taxable in Pennsylvania you we need to talk about sourcing so in every state that we've done Jennifer Stacy and I we've talked about sourcing and sourcing is so important so for example I live in Arizona we're an origin based state just like Pennsylvania so if I am a retailer I'm my sales tax rate is based off of where my brick and mortar building is I'm in Phoenix so therefore my sales tax rate is from Phoenix Pennsylvania is the same way if you're in Pittsburgh your sales tax is going to be Pittsburgh not all the states function that way so a lot of states are based off of where you're shipping to and Pennsylvania is not set up like that so it the confusing part about this is if you have a location in Pennsylvania like an actual physical location you're going to use that address to determine your sales tax rate but if you're an out-of-state retailer or online provider of digital goods you would be using more of a destination based because you don't have anything that actually tethers you to a physical location in Pennsylvania so if you're operating in multiple states I would encourage you to talk to whoever your sales tax guru is to determine if you're charging the right sales tax rate because the origin versus destination is really gonna vary and unfortunately it doesn't it's not the same for all neighboring states so that's just something to consider and also if you're thinking about setting up a software program for automation you're going to also need to know that as well so sales and use tax incentives it's not all doom and gloom not everything is taxable Pennsylvania has quite a few deductions they're all they're not huge there's the normal ones like retailing reselling equipment or property wrapping supplies are surprisingly exempt and that includes crates and containers sometimes you know any cities are a tourist type of material that's going to be exempt anything that's considered quote-unquote out-of-state sales are exempt they also have some interesting what they call zoning exemptions now we see this in California too usually we would see anything that is an opportunity expansion or land and expand type of credit it's always on the corporate side but there's a couple of states that have sales tax deductions so if you're working in a certain zone maybe it's a lower socioeconomic class zone or maybe it's you know they're gonna build a state medium or something or it's just considered a special just a special district they might have a sales tax deduction for materials or something like that so Pennsylvania offers that it's very rare that you're going to find these types of deductions in any other state okay I want to talk about audits it's the first time I popped the slide in some of the state presentations we've done and that's just because I get a lot of questions about audit you know what to do what to expect and maybe some of you have had the pleasure of going through a sales tax on it um if you have you probably understand what I'm saying so during an audit you're gonna always have the pre-planning this is where the auditor sends you a list of everything in the world they can think of to look at then they're gonna want to schedule a call you do a call with them that's called the pre audit conference some states call it something else but it's usually the pre-cana conference um information requests this is where they send you the list and they expect it back within a period of time now the in this particular bullet you can do some negotiation so they might be asking for a bunch of multi-state stuff they might be asking for some of your fed information they might be asking for payroll they might be asking for who knows what so it's been my experience that they ask for everything but they don't really need to see everything and you might not have all access to all those documents usually there's a period where the auditors take time to do some analysis and then they do a audit finding summary sometimes the paint on what you're on who your auditor is and what state you're being audited by Pennsylvania is I wouldn't say there's strict to some of the other states we've done audits with but you know they're they're more sometimes the attitude you get is well this is what it is and if you have a problem with that we can discuss it in appeal and and you only get to appeal once you do your audit conference so these are the very high-level steps of an audit there's some of these that you can do over and over again where you go from data and data analysis and the auditors like well now I want to see other reports so that can happen just keep in mind that you know this these are the usual steps that you go through but if you if any of you go into an audit with Pennsylvania and you're confused and the auditors throwing out stuff like stat sampling or they want to do block sampling or something like that reach out to your sales tax professional so that they can help you with it because you don't want to get yourself in a situation where you know you've created a higher error ratio but now you have some have a huge tax bill so I'm not going to touch too much on marketplace or remote sellers because Jennifer kind of went through that already what I will say about it though is when you look at this in a slide you think man how did they break out all these in different subcategories you know like prefer remote seller one of the things that I will say is that you know as Jennifer mentioned their requirement to start identifying which transactions are occurring within their state if you don't have Nexus like that already happened so if you're a entity that's doing business in Pennsylvania but you're not licensed or registered and maybe you don't need to be because you don't meet the Nexus requirements as of right now then you might want to consider you know looking into some of these requirements because they're gonna be I think the annual report is due in January but I'd have to double-check that and we receive more and more of this as more people start to sell things online or they offer digital downloads trying to click ok there we go drop shipments this is something I get a lot of questions on and I I tried to draw the triangle of confusion because it is confusing so usually what we see is it's a wholesaler or retailer and then you have your customer and what we see a lot of times is companies adopt one type of model and then they apply that across how they do all their transactions unfortunately there is no right answer and because your wholesaler could have Nexus you could have Nexus or neither of you could have Nexus and then who's really responsible for collecting the tax so there was actually a I think it was in 2017 a drop shipment case where there is a virginia retailer drop shipped something into Pennsylvania but the person who bought the item was from Massachusetts like that's where the bill too was so they went under audit the auditor caught it and said well now you know the our client was saying or excuse me the the taxpayer in this ruling was saying hey well we don't have Nexus we don't have to collect sales tax and then the Virginia dropshippers said well we don't have Nexus so we don't have to collect sales tax so if you have both of those things we don't have to collect sales tax who do you think it falls do it falls to the customer in this particular ruling though Pennsylvania said well if you're shipping something to us you should collect sales tax even if you don't have Nexus now that ruling is being questioned and it's been pushed up to a higher court but now that some of the Nexus rules have changed and they have the remote seller reporting requirement I don't know how that's gonna last it probably will nope I have to reach and sort of out of out-of-court agreement both what I kind of want to touch on here is this triangle you see in front of you of who's supposed to collect tax I always say follow the money so if your customers based in Pennsylvania the whole seller is in Virginia and the retailer you know let's say they're in California your whole seller you would need to know if your wholesaler has or your drop shipper has Nexus well if you're dealing with the big wholesalers like many of them are they have locations everywhere and nobody's got really time to figure this out if you're in if you're this in type of this situation one of the things I would suggest is you can't fit a perfect model into somebody who does hundreds of thousands of transactions per month what you're gonna want to do is figure out you're gonna probably want to take a couple of hours and figure out okay where do we have Nexus where do our wholesalers to have Nexus and then come up with a reasonable way to collect tax and if you don't have tat if you're not going to collect tax because neither one of you have net then you need to figure out at that state has a remote reporting remote seller reporting requirement because I think right now and Jennifer grandpa mom wrong I think there's eleven states itch that have remote seller reporting requirements and as Jennifer mentioned the fees are huge so it's just something to consider and in this particular ruling even though Pennsylvania didn't necessarily have the exact statute to support their argument they still won on the audit side and everything always has to be pushed up to an upper level so just something to be aware of the last one I kind of want to touch on and I always touch on digital products is because we see a lot of this especially in the software as a service or area where you sell something that's a software product it's digital download maybe it's canned maybe it's custom doesn't matter necessarily it depends on what what you're doing Pennsylvania had a an audit where they said well we we sell the product but with that product when they sell it to them we also provide consulting well in this particular case the consulting wasn't always separately stated on the invoice and they couldn't really pinpoint a value of that consulting they just kind of paid you know one big lump price so in Pennsylvania software digital downloads software as a service is taxable even if you don't cut yourself software as a service if you're doing anything that is remotely close to that Pennsylvania stannic entity there you a SAS company any training or troubleshooting or online tech support even email tech support they're gonna consider taxable if that service was sold in tandem with a digital product so this case had some very issues around it but the main thing I want to get across is when you're billing and I realize this is not a fan for some of the bigger companies but you need to breakout services versus tangible property or no products it is in some cases it can really help you it during an audit situation this client didn't particularly do it all over the place but it's something that you just kind of need to be aware of because if you can't break it out the state will say everything is taxable unfortunately so what we do see happen and this is actually pretty clever is you can simply see companies if you get big enough you can separate and of course there's always tax consequences to this so and no way and no no means am I suggesting everybody go separate your lines of business but if you ever have the opportunity to reorganize you're considering it and we have seen in the past other companies separate okay this is just tech consulting and then this side is just gonna be just software sales in Pennsylvania doesn't matter because they tax all of it but in some of the other states it can make a big really big difference so I think that's all I have I'm gonna pass this over to Stacy and she's gonna discuss some of the income tax nuances with Pennsylvania okay thanks fora all right so I was I'm gonna switch gears now and talk about income tax issues in Pennsylvania and starting out as we always do with okay may I have to pay an income tax in Pennsylvania and how do I figure that out well actually Pennsylvania is one of the few states that has what they consider a physical present standard for doing business if you've been on any of our other webinars for the other states you've done or just have your own experience with the doing business standards and a lot of other states they're usually very broadly written and they tend to have more of an economic presence flavor to them meaning that a lot of them say that if you're just you know generating income in this stage that that's enough to be doing business in the state and then as you all are probably aware we've got a lot of things out there that have their thresholds meaning that if you sell over a certain dollar threshold into this for income tax purposes you could then have Nexus but Pennsylvania so far is not one of those and they are pretty much a physical present standard for income tax which and as we know in the wake of Wayfarer is a little interesting because maybe for income tax purposes in Pennsylvania is going to be a little bit more straightforward than Nexus for sales tax purposes which is not hasn't always been historically the case for many other states so having said all that physical presence is as a theme pretty obvious traditional Nexus standard meaning having capital or property in the state whether you know it's used you're just being stored owning it having a stock of goods deliveries and company owned trucks so don't forget about that you know some sometimes the states may carve that out as an on Nexus creating activity meaning that it's you know more akin to something thats related to solicitation however Pennsylvania specifies that it is part of their Nexus creating activity again having employees reps in the state soliciting business however as we all know there are some limitations on that which I'll talk about but they also go on to state that you know soliciting business doesn't have to mean just having an employee or a rep in the state going and visiting customers it could mean advertising via you know the US Postal Service radio TV newspaper and the like or if you're even leasing or servicing property in the state that's going to be a nexus creating activity and tradeshow attendance so these are most those are very common physical presence standards or Nexus creating activities however it's always good to kind of remember what some of these are because maybe you're only thinking about having property in the state that don't forget about you know having reps in the state okay so I mentioned soliciting sales and that there are some limitations on that and Pennsylvania is no different they impose a net income based tax so public law 86 to 72 does apply and for those of you who do not know what that is it's a federal law which basically protects certain types of income from being taxed and basically it is a limited standard it's a limited law that means that basically if you have a employee or a rep that's in the state soliciting sales of tangible personal property and the orders are approved and sent from outside of the state then that income that those sales would be protected and that such as to tax them in Pennsylvania so they have this they have this law as most of you have heard in other presentations or no even from experienced public wai262 72 is limited it only relates to income taxes doesn't there's no protections for sales tax capital stock taxes business privilege taxes those types of things and it's also only on the sale of tangible personal property it does not provide any protections for services and you can suddenly not be protected if you exceed certain limitations so for example having stock of goods in the state you know having more and having property in the state for example so again very limited exception however it is there and I encourage tax payers that may be selling TPP into the state to just look and see what activities they have going on in Pennsylvania particularly if they don't have a location there to see whether maybe their income is protected okay
so now we're going to come to a polling question uh next one do you have employees or agents traveling into Pennsylvania providing services yes no I don't know but it better check and our results are kind of mixed alright and we got a few that are going to have to go back and check which is good to know because if you do have individuals going into Pennsylvania like like we like I said that is a physical presence and therefore there could be a filing requirement all right moving right along I'm going to touch base on the corporate tax regime and then on pass-through entities we'll start with our corporate tax regime Pennsylvania actually in the last couple of years has become a little bit more simplified from a corporate taxes in place you can believe it they are a separate company state so there's not the opportunity to do a consolidated return if you have you know a consolidated type over federal group you look at each entity on its own to see whether they have activities in Pennsylvania and you calculate a separate company return in Pennsylvania for each entity that is doing business the starting point is line 28 of the federal 1120 they do have a fairly high rate unfortunately if it nine point nine nine percent they or corporate and compact purposes they do not reference or incorporate of the IRC code and entirety they do they do adopt various provisions or select provisions which will be important when I talk about tax reform in a moment and as I mentioned they did what I consider a simplified their corporate tax regime a little bit by doing away with their franchise tax I think most of you then have done business or have any experience with Pennsylvania we remember the history of earnings where you had to list book income to the last five years and then was a rolling calculation each year a year would drop off on the history of earnings etc and then it was kind of a convoluted franchise tax calculation and they finally finally faced it out they were supposed to say that out earlier than 2015 but then it's stuck around for a couple extra years but they finally did away with it so starting in 2016 we didn't have the corporate or the franchise tax to deal with and that was for corporations as well as pass-throughs because as you maybe it will you know may remember pastors were subject to that franchise tax as well all right so I mentioned tax reform and then the issue of conformity to the IRC and for any of the states that are looking and grappling with what to do with the federal tax reform conformity is the place to start Pennsylvania as I mentioned they kind of pick and choose from the corporate standpoint standpoint what they want to adopt from the IRC now what they have done with respect to federal tax reform and what a lot of states have done unfortunately has just provided some guidance at this point you know from a federal standpoint I know that you know we're still waiting for guidance on some things or more regulations well as most of you know the states are really behind when it comes to even normal situations so this is a completely moving target when it comes to tax reform and so what we've seen is the states may be picking some provisions that they've taken a look at and they're deciding do we adopt it or not so what Pennsylvania has done is they've actually announced they had an information notice that came out I think was the end of morale rather where they did address 965 and at least what we think is going to happen now one of the caveats though with Pennsylvania is that their legislature meets all the time so what I'm telling you today could very well change but this is at least what we know right now when it comes to 69 65 which for some of you on this call may not apply however they did they did put up some information about this and they will include that you know the repatriated income and deduction in the state tax base what's interesting is that you know that deduction if anybody's following along with the street with 965 that income and that deduction are not going to be one in the same necessarily so Pennsylvania and there's some other states that have adopted this as well Pennsylvania has you know a dividends received deduction so even though this repatriated income is really a deemed dividend they will provide a dividends received deduction for it but on that net number so you're not you're you're like I said that income number is going to be potentially different from your deduction on the repatriated income so that net number is what's going to be subject to the DRD from a federal standpoint there is that deferral election for eight years Pennsylvania has said we're not going to adopt that except in the case of reach on the depreciation bullets here have been a little bit controversial the first bullet in particular because early on this year they indicated that they were not going to provide a an adjustment for the one hundred percent deduction under 158 K they were going to just have a hundred percent add back with no additional mechanism for cost recovery well since I think this came out fairly recently in the last week or q oh yeah I'm June 19th they're on the slide there that there is a Senate bill 1056 that has been advanced by the house that would reverse this position and then there would be some kind of you know state adjustment then and then the house had passed that their version of that legislation in March so again as I said Pennsylvania being one of these that has their legislation legislature meeting on a fairly regular basis they remain C seen what's going to happen with this but hopefully this position I'm adding back that one hundred percent deduction for depreciation will actually get reversed but we'll monitor that situation and see what ends up happening okay now to our next polling question so what is the current corporate income tax rate for C Corp taxpayers in Pennsylvania zero five points and five percent six point nine nine percent or nine point nine nine percent all right most everybody get my right it is nine point nine nine percent okay so a couple quick notes about apportionment um Pennsylvania is a single sales factor again they phased that in overtime so some of you may recall though they that they had a couple different factors going on at the same time when they had the franchise tax and so they've done away with all that obviously a franchise tax and they've actually now gotten to a hundred percent single sales factor sales of tangible personal property are based on destination they do not have a throwback rule they do have a market based sourcing rule for sales of services it's written a little differently from some of the others out there because they basically want you to source the amount to Pennsylvania based on the percentage of total value of the service that's delivered in Pennsylvania which means that could mean a lot of different things but suffice to say that in their regulations and the statutes that if you're not sure kind of where or how to divvy up that value of service that's delivered then it would default generally the billing address of the customer um they do exclude certain receipts from their apportionment factor dividends being one of them which can impact our 965 as you recall we've got income coming in we've got income going out for repatriated income now they don't even include dividends they're their sales factor so that doesn't it doesn't mean that you then have to maybe include a part of them in your factor that weren't otherwise excluded in the tax base so just something to keep in mind I'm a couple notes on pass-through entities escorts and enemies taxes partnerships they file a form PA 20s and the PA or PA 20s /tn sixty-five they do have non-resident withholding quarterly payments are required if withholding is expected to be more than five hundred dollars for the year and then they do allow composite returns however you have to have more than one number so that sometimes throws some of our taxpayers out from being able to file a composite return a couple notes on tax reform for pass-through entities at least again what we know right now subject to change from an individual income tax standpoint Pennsylvania does not conform it doesn't is there not a rolling conformity they're not you know static conforming to the IRC they have their own basically own calculation that they do and as such then they're you know just kind of going to have to provide more guidance on what is what they're going to adopt or not adopt for reform and so what they've done again on this repatriation issue is for purposes of class paster entities anyway and the reason that this is important from an individual standpoint if the Pastner entities for Pennsylvania purposes are taxed you look to the individual income tax code in Pennsylvania so it's a little bit different from some other states that way but what they've put out is that for the repatriated transition tax incomes of it you know that 965 again that being a deemed dividend mostly in most cases and not an actual distribution then it's not considered a dividend for personal income tax purposes in Pennsylvania so what that means is that if you've got that Dean dividend and they're going to want that adjusted out of the tax based on what they have is a Schedule M which is basically just their adjustments out of the Pennsylvania pasture in any form and then if there is an actual distribution when and if there's an actual distribution of cash out of EMP that's made then that would be subject to personal income tax on Pennsylvania so and that beam dividend just know that right now Pennsylvania is looking at having to adjust it out okay and that brings us to our next polling question Pennsylvania imposed imposes which taxes on pasture entities a minimum tax an annual filing fee all of the above or none of the above yeah and the answer is none of the above any little trick questions for everybody okay I'm going to mention local income taxes because Pennsylvania is one of the few states out there that has imposes basically city income taxes and I have income taxes up here that there are some jurisdictions in Pennsylvania that impose we are considered more like gross receipts taxes there at the bottom Scranton is one of them now these are just an existence not a laundry list of the cities that impose taxes there are many many many jurisdictions in Pennsylvania that impose at least that business privilege tax that Scranton has or something like it Pittsburgh has what they call an individual earned income tax and that's basically on wages Philadelphia has it as well but Philadelphia has a lot of entity level income taxes that sometimes can catch taxpayers off guard so if you have a situation where you own property in Philadelphia or you have a remote employee in Philadelphia I strongly encourage and you're not filing there I strongly encourage you to get registered and get compliant there because they're pretty aggressive and they do impose like a business income and in that profits tax but that profit tax is more like a gross receipts tax but they oppose those even on partnerships so sometimes we have situations where is that past entities is saying oh you know we're doing business in Pennsylvania all the income passes through to the shareholder the partners or shareholders and they're the ones that are subject to the tax well not so in Philadelphia Philadelphia taxes those at the entity level and sometimes that can catch tech Paris by surprise so just warning on that and like I said Philadelphia is pretty aggressive and they are pretty active they'll send notices and so I just caution you if you're going to do business or maybe you already arguing business ability to take a look at that and with that that summarizes or you know kind of concludes the income tax case so now I'm going to throw it back to Jennifer to go through canceling a sales tax license and Pennsylvania once once you've exited Thank You Stacy yeah we'll just wrap up here quick we've now talked about just tax and when we need to file an income tax what we need to file and we're registered in the state but if we cease doing business in the state we're not gonna do business anymore the businesses sold we have no more operations in the state that is when you then have to consider canceling out or closing down your sales and use tax license and I'm talking about sales tax license but this theme form you can actually use to close out many of your different accounts within the state if you have withholding or public transportation assistant fun taxes fees vehicle rental cigarette tax those types of things can all be done in this process but keep in mind that you know as we're talking through this we're really talking about when you really ceased doing businesses in the state discontinued operations not if you just had an employee there that's no longer there but if you're still my he sales into the state the business is still potentially doing business that's not when you cancel that registration so as we talked about earlier now that Pennsylvania does have the those reporting requirements on they may be required to be registered just for by having $10,000 or more of sales into the state but if you have TSP business no more operations in the state there's form are evey 1706 that you submit to complete and submit that as I mentioned that form can't be used for the multiple taxes including sales and use tax and other employer withholding pay taxes that you would be filing in the state the key piece of all this and you're doing all that is making sure that you file have filed all outstanding tax returns that all applicable taxes fees penalties interests any outstanding liabilities that are out there for the states have been paid in all returns have been filed whether that's income taxed whether that sales tax any other tax reports that are due in order to get completely closed out canceled out of the state you need to make sure that all outstanding liabilities have been remitted and paid to the state and that form can be done online I believe it is also a paper version that can be done to if if used to choose alright and that takes us to our last president our last polling question I would like to see future presentations on economic Nexus implications and sales tax collecting and remitting state income tax implications on regarded leading to the federal tax reform or surviving a sales and use tax audit as we think about different presentations or just like to get feedback from our clients and those attendees so what would be of interest to you all right well that is that's great information for us thank you all right so with that thank you so much for joining us today I think we may have if there are any questions out there if there's any turn have there been any questions sent in to the
