PA (Philadelphia): BIRT economic nexus regulation filed

In light of the Wayfair decision, the City of Philadelphia Department of Revenue has amended the regulation that defines “doing business” in Philadelphia for purposes of the City’s Business Income and Receipts Tax (BIRT). The amended regulation, which has been filed with the City Records Department, adopts an economic presence standard effective for tax years beginning January 1, 2019 and after. Under the ”economic presence” standard,  a business with no physical presence in Philadelphia will be subject to the BIRT if it (1) has generated at least $100,000 in Philadelphia gross receipts during any 12-month period ending in the current tax year and (2) has sufficient connection with Philadelphia to establish nexus under the U.S. Constitution. The amended regulation also adopts an “active presence” test for tax years before 2019 and provides detailed guidance on what constitutes an “active presence.”

The amended regulation clarifies that Public Law 86-272 will continue to protect a business whose activities in Philadelphia are strictly limited to solicitation of orders for sales of tangible personal property (including activities entirely ancillary to solicitation). Such businesses are protected from the net income portion of the tax, but may be subject to the gross receipts portion of the tax. Please contact Howard Sklaroff at 267-256-2891 with questions.