PA: Corporate tax bulletin provides hedging and other receipts are excluded entirely from the sales factor

Recently, the Pennsylvania Department of Revenue issued Corporation Tax Bulletin 2019-01, addressing the sales factor treatment of hedging related receipts. In the bulletin, the Department takes the position that receipts from hedging transactions (and certain other types of receipts) are excludable from both the sales factor numerator and denominator for tax years beginning after December 31, 2018. 

The Department’s rationale for its new policy, as stated in the bulletin, is twofold. First, the Department believes that the transactions described in the bulletin do not reflect the market for a taxpayer’s goods and services. Furthermore, in the Department’s view, hedging instruments are similar in nature to securities, which are specifically excluded from the factor by statute, and hedging instruments are not held by a taxpayer primarily for sale to customers in the ordinary course of its trade or business. Please contact Howard Sklaroff at 267-256-2891 with questions on the bulletin.