State to Broaden Base of Corporation Net Income Tax

From PA Chamber of Business & Industry

Beginning in January of 2020, the Pennsylvania Department of Revenue will begin to assess the state’s Corporate Net Income Tax on out-of-state corporations that do business in the Commonwealth. 

The change in policy comes on the heels of last year’s U.S. Supreme Court decision in South Dakota v. Wayfair which found that states can collect sales tax from corporations that, while not physically located within the states’ boundaries, do business within the state.  According to a Corporate Tax Bulletin issued by the Department, corporations that aren’t located in the state but have “$500,000 or more of direct or indirect gross receipts pursuant to their sales factor” sourced to Pennsylvania will be required to pay the state’s CNI tax.  The gross receipts sales can be factored from a combination of the following three categories: 1. the sale, rental, lease or licensing of tangible personal property; 2. the sales of services; and/or 3. the sale of licensing of intangibles, including franchise agreements. 

The Wolf administration has not publicly stated how much additional revenue this expansion of the CNI tax is expected to bring into the state’s General Fund.  The tax generated $3.4 billion in the 2018-2019 fiscal year.