Pennsylvania adopts economic nexus threshold for corporate net income taxpayers

Pennsylvania issued Corporation Tax Bulletin 2019-04 to address changes to its corporate net income tax nexus standard effective for tax periods beginning on or after Jan. 1, 2020.

Takeaways

• Corporations that lack Pennsylvania physical presence will be presumed to have a corporate net income tax filing requirement if their receipts from in-state sources are $500,000 or more
• Gross receipts can include any of the following:
  -   sale, rental, or lease of tangible personal property
  -   sale of services, and/or
  -   sale or licensing of intangibles including franchise agreements
• The bulletin only applies to corporations or entities electing to be treated as corporations for federal income tax purposes
• Pennsylvania utilizes market-based sourcing for sales other than tangible personal property; such a methodology would apply to out-of-state sellers when they are determining their receipts from Pennsylvania sources

The Pennsylvania Department of Revenue’s rationale for the bulletin

• The Wayfair decision clarified, for corporate net income tax purposes, out-of-state companies are considered to be doing business in Pennsylvania “to the extent they are taking advantage of the economic marketplace” regardless of their physical presence.
• “As a result, the Department will require such taxpayers to begin filing Corporate Tax Reports as long as they meet the minimum thresholds for nexus under the Constitution of the United States.”

Points to consider

• Taxpayers with $500,000 or more of Pennsylvania-sourced gross receipts are presumed to have nexus and a corporate net income tax filing obligation
• Taxpayers are permitted to rebut the presumption of nexus
• The Department acknowledges taxpayers lacking physical presence may still be able to claim the protection of P.L. 86-272
• To successfully claim P.L. 86-272, taxpayers will need to complete the required Department forms

Should you have any questions on Pennsylvania’s corporate net income tax, the new economic nexus standard or any state tax matter, please contact a member of the Baker Tilly state and local tax team to ensure you are well prepared and in compliance.