Pennsylvania: Department of Revenue Revises Its Corporate Economic Nexus Guidance

Almost a year ago, the Pennsylvania Department of Revenue issued Corporation Tax Bulletin 2019-04. This Bulletin created a rebuttable presumption that for tax years beginning on or after January 1, 2020 corporations without physical presence in the Commonwealth, but that have $500,000 or more of gross receipts sourced to Pennsylvania are subject to Corporate Net Income Tax (CNIT), unless protected under Public Law 86-272.  The Bulletin originally listed three categories of receipts that would count toward the $500,000 threshold if such receipts were sourced to Pennsylvania: (1) gross receipts from the sale, rental, lease, or licensing of tangible personal property; (2) gross receipts from the sale of services; and (3) gross receipts from the sale or licensing of intangibles, including franchise agreements. 

On August 6, 2020, the Department of Revenue revised Bulletin 2019-04 to add interest and other intangible receipts to the list of types of receipts that count toward the $500,000 threshold.  Language was also added to the Bulletin stating that taxpayers with $500,000 or more of gross receipts per year sourced to Pennsylvania, but who claim to not have nexus, including those that claim P.L. 86-272 protection, should file a Corporate Tax Report including sufficient information on Form, REV-986 (P.L. 86-272 exemption) or attachments to permit verification of the tax liability and to support the position that the entity is not subject to the CNIT.  

The revised Bulletin also addresses the application of the economic nexus standard to corporate partners. Although Pennsylvania has not adopted economic nexus for personal income tax purposes, a partnership that has corporate partners may be required to file a PA-65 Corp. (Directory of Corporate Partners) and withhold CNIT on non-filing corporate partners if the partnership has $500,000 in gross receipts sourced to Pennsylvania.  In making this determination, the pass-through entity should include its share of receipts from lower-tier pass-through entities. A corporate partner will need to consider its share of receipts from all pass-through entities in determining whether the corporate entity has exceeded the $500,000 rebuttable presumption of nexus for CNIT purposes.  Please contact Howard Sklaroff at 267- 256-2891 with questions.