PA Department of Revenue Reverses Pro-Business Policy on Capital Investments

From PA Chamber of Business & Industry

Late last month, the state Department of Revenue quietly made a significant change to employers’ tax filings regarding capital investments. This action is in response to the 100 percent bonus appreciation deduction that will be allowed under the federal Tax Cuts and Jobs Act. The decision reverses a Corbett-era policy that allowed for this deduction at the state level. It requires taxpayers who take advantage of capital investments – primarily for the purchase of new equipment to expand or improve production at their facilities – to reflect those purchases when filing their income taxes.

The history of the agency’s changes regarding depreciation dates back to 2002, when in the wake of a Congressionally-approved “bonus” depreciation of 30 percent, the General Assembly enacted legislation to allow the same level of depreciation, but spread it out over multiple years to deflect a hit to the state General Fund. With that move to decouple the state’s depreciation policy from the federal policy, the legislature was clear about its intent – it would help businesses take advantage of the change. Fast forward to 2011, when the Corbett administration’s Revenue Department allowed state policy to mirror federal approval of a 100 percent bonus deprecation.  The new policy strips all that away and then some: it allows no depreciation until the asset is disposed of or sold.

State Rep. Frank Ryan, R-Lebanon, has since announced his plans to introduce legislation that would reverse the Revenue Department’s action in order to help business owners take full advantage of the bonus depreciation benefits enumerated under the new federal tax reform law. In a co-sponsorship memo that was circulated early last week, Rep. Ryan decried the department’s actions. “Under [Revenue Corporate Tax Bulletin] 2017-2, in the best case scenario, a taxpayer gets no deduction until the asset is sold or disposed of. If the taxpayer has equipment that may be used indefinitely, it could effectively get no depreciation write-off in Pennsylvania. This draconian pronouncement essentially tells business owners ‘thanks, but no thanks, Pennsylvania is closed for business,” Ryan wrote. The legislation to reverse these provisions will be introduced in the near future.