PA Chamber Seeks Changes to Proposed Corporate Tax Rules
The PA Chamber is urging the State Department of Revenue to revise its proposed regulations governing how businesses determine which sales of services count as Pennsylvania sales when calculating their corporate net income tax.
The Chamber submitted comments last week to the Independent Regulatory Review Commission (IRRC), raising concerns that portions of the proposed regulations go beyond existing state law and could create additional uncertainty and compliance costs for employers.
Pennsylvania adopted a new system for calculating corporate income tax in 2013 that generally looks at where a company makes its sales. For businesses that provide services (such as accounting, consulting, legal, engineering, and technology services), sales are generally counted in Pennsylvania based on where the customer receives the benefit of the service.
The Department of Revenue issued guidance in 2014, and tax practitioners and the business community have long sought formal regulations to provide greater clarity and certainty. The PA Chamber supports that goal but said the proposed regulations would, in several areas, change existing policy rather than formalize it.
“We believe a well-crafted regulation could provide certainty and be mutually beneficial to taxpayers and the Department,” PA Chamber Vice President of Government Affairs Neal Lesher wrote in public comments submitted to the IRRC on Aug. 24.
The comments focus on provisions it believes deviate from state law and others that would create rules that could favor the Department of Revenue in determining where a company’s sales should be counted, rather than requiring the department to make findings required by law.
State law generally requires professional services to be counted where they are delivered, but the proposed regulations would instead establish rules based on factors such as a customer’s primary residence, where a business contract is managed, or where an affiliated company’s employees are located.
The PA Chamber argues that those locations do not necessarily show where a customer receives the benefit of a service. It is asking the department to make the proposed rules optional safe harbors — approaches businesses can choose to use — rather than replacing the standard established by state law.
The Chamber also raised concerns regarding proposed rules for internet-access services, how the department can require a different method for deciding where a company’s sales should be counted, documentation requirements, and a provision that could allow the department to treat up to 100 percent of an employer’s sales as Pennsylvania sales if its records are deemed insufficient.
Another provision would require taxpayers to explain differences between how they count sales in Pennsylvania and how those same sales are treated in other states. The Chamber said this could impose significant compliance costs when differences simply result from states having different tax laws.
The PA Chamber also asked the department to provide guidance on common business arrangements, including contract manufacturing and research and development services.
“Better clarity and certainty in this area is something we all desire,” Lesher wrote.
The full public comment letter is available here.
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The Columbia Montour Chamber of Commerce is a proud member of the PA Chamber of Commerce and an active part of the U.S. Chamber Federation of small and regional chambers, which routinely provides content like the article above. The content above does not constitute legal, accounting, tax, or other professional advice but is for general informational purposes. For accurate, complete advice, readers are encouraged to consult with qualified legal, accounting, or other professional advisors before making any decisions based on the information provided. If you need help finding qualified help, please contact the Chamber for a list of our members.