On July 27, 2018, the Pennsylvania Department of Revenue (“Department”) issued Tax Bulletin – Sales and Use Tax 2018-02 regarding taxpayers engaged in the manufacture and sale of malt or brewed beverages.  The Bulletin is intended to help clarify when a manufacturer of malt or brewed beverages must collect sales tax on the sale of malt or brewed beverages.  Unlike a retail liquor licensee or retail dispenser, a manufacturer of malt or brewed beverages is required under the Tax Reform Code of 1971 to collect sales tax on its sales of malt or brewed beverages to any person for any purpose except sales to importing distributors or distributors.  72 P.S. § 7201(k)(10).  The Department realized that confusion will occur since a manufacturer is required to collect sales tax on each individual sale of its own product to the public for on-premise or off-premise consumption, while other licensees, not selling their own product but in all other respects acting in a similar capacity, do not collect sales tax.  Accordingly, the Department will provide manufacturer’s the following two options for collecting and remitting sales tax:

1.  Include the sales tax in the advertised price of their product; or

2.  Separately state and charge sales tax on each individual sale.

Under Option #1, the sales tax shall be computed by the following formula:  (Total receipts from the sale of its own products ÷ 1.06) X .06 = Sales Tax Due.  Please note that a manufacturer that elects to collect tax using this method must display a sign at the location where its prices are displayed noting that the displayed purchase price includes sales tax.  Additionally, a manufacturer must pay sales tax when it purchases products other than its own to sell to the public for consumption on-premises.  The Department will not require a manufacturer to collect sales tax on sales of other manufacturers’ products to the public (similar to how a bar or restaurant operates).

Under Option #2, the manufacturer must collect and remit sales tax on each individual sale of its own product, whether the sale is for on-premises or off-premises consumption.  Additionally, if a manufacturer sells the products of other manufacturers, it must collect the sales tax on the purchase price of those sales as well.  The manufacturer should provide the other manufacturer with an exemption certificate claiming a sale for resale exemption.  A manufacturer claiming the resale exemption must collect sales tax when its sells the property to its customers.  If the manufacturer does not provide an exemption certificate to the other manufacturer when making a purchase and pays sales tax on items that it later resells to customers and charges sales tax, the manufacturer may claim a Taxes-Paid-Purchases Resold credit on  its sales tax return.

For manufacturers that sell its malt or brewed beverages under a retail license there are special rules because sales tax is not charged on the sale to the ultimate consumer of the malt or brewed beverage.  In these type of situations, the Department requires the manufacturer to use a constructive purchase price for its own products in order to determine the proper tax base upon which to remit sales tax to the Commonwealth.  The Department considers the actual retail price of the malt or brewed beverages sold to consumers to best reflect the constructive purchase price.  In this scenario, the Department will allow a manufacturer to calculate its tax owed using the Option #1 method mentioned above.

Please note that the Department’s guidance is applied prospective only, beginning with the effective date of January 1, 2019.

If you have any questions regarding this Tax Bulletin, please call Paul Morcom (717-237-5364), Sharon Paxton (717-237-5393) or Randy Varner (717-237-5464) to discuss.

 

 

The annual assessment appeal deadline for tax year 2019 real estate taxes just passed on August 1, 2018 for 19 of Pennsylvania’s 67 counties.  The next annual assessment appeal deadlines are as follows:

  • Berks County – August 15, 2018
  • Wyoming County – August 31, 2018

The majority (44 out of 67) of Pennsylvania’s counties have an annual assessment appeal deadline of September 1, 2018 for tax year 2019.  Those counties are:

  • Armstrong
  • Beaver
  • Bedford
  • Blair
  • Bradford
  • Cameron
  • Carbon
  • Centre
  • Clarion
  • Clearfield
  • Clinton
  • Columbia
  • Crawford
  • Cumberland
  • Elk
  • Forest
  • Fulton
  • Greene
  • Huntington
  • Jefferson
  • Juniata
  • Lackawanna
  • Lebanon
  • Lycoming
  • McKean
  • Mercer
  • Mifflin
  • Montour
  • Northumberland
  • Perry
  • Pike
  • Potter
  • Schuylkill
  • Snyder
  • Somerset
  • Sullivan
  • Susquehanna
  • Tioga
  • Union
  • Venango
  • Warren
  • Washington
  • Wayne
  • Westmoreland

The appeal deadline for Philadelphia County is the first Monday of October, which is October 1, 2018 this year.

Allegheny County is the only county that has a deadline, March 31, that is actually during the year that you are appealing. Thus, the appeal deadline for tax year 2019 in Allegheny County is March 31, 2019.

If you own or lease commercial or industrial properties in Pennsylvania, please make sure that you are aware of these appeal deadlines. Additionally, if you are not sure if you should file an appeal on your property, please contact either Paul Morcom at 717-237-5364 or Randy Varner at 717-237-5464 to determine if an appeal is warranted for tax year 2019.

After enactment of the Federal Tax Cuts and Jobs Act last year (which allowed taxpayers to claim bonus depreciation for the full cost of eligible property placed in service after September 27, 2017), the Pennsylvania Department of Revenue issued Corporation Tax Bulletin 2017-02. In Bulletin 2017-02, the Department concluded that corporate taxpayers were required to add back the 100% bonus depreciation amount to Pennsylvania taxable income and that no depreciation deductions would be allowed on 100% bonus depreciation property until the year in which the taxpayer disposed of the property.

In response to the proposed disallowance of all cost recovery for Pennsylvania corporate net income tax (“CNI”) purposes, the General Assembly passed Act 72 of 2018, which was signed into law by Governor Wolf on June 28. Under Act 72, for property placed in service after September 27, 2017, Pennsylvania corporate taxpayers taking advantage of the new 100% bonus depreciation rules for Federal tax purposes may use Federal depreciation rules, other than bonus depreciation, for CNI purposes. This essentially places taxpayers in the same position they would have been without the Federal bonus depreciation.

Corporation Tax Bulletin 2018-03, issued July 6, supersedes Bulletin 2017-02. In Bulletin 2018-03, the Department of Revenue clarified that it will continue to allow depreciation deductions under Corporation Tax Bulletin 2011-01 for property placed in service before September 28, 2017. For property placed in service after September 27, 2017, Act 72 allows an additional deduction which is limited to the depreciation amounts under the Modified Accelerated Depreciation System (MACRS). The taxpayer can deduct any unused bonus depreciation in the tax year in which the asserts are sold or otherwise disposed of.

Taxpayers who have already filed 2017 CNI returns which include assets subject to Act 72 may filed amended returns to claim an additional deduction for the amount of deprecation allowed under MACRS.

The annual assessment appeal deadline of August 1, 2018 for tax year 2019 is quickly approaching for the following Pennsylvania Counties:

Adams, Bucks, Butler, Cambria, Chester, Dauphin, Delaware, Erie, Fayette, Franklin, Indiana, Lancaster, Lawrence, Lehigh, Luzerne, Monroe, Montgomery, Northampton and York.

The annual assessment appeal deadline of September 1, 2018 for tax year 2019 is on the horizon for the following Pennsylvania Counties:

Armstrong, Beaver, Bedford, Blair, Bradford, Cameron, Carbon, Centre, Clarion, Clearfield, Clinton, Columbia, Crawford, Cumberland, Elk, Forest, Fulton, Greene, Huntington, Jefferson, Juniata, Lackawanna, Lebanon, Lycoming, McKean, Mercer, Mifflin, Montour, Northumberland, Perry, Pike, Potter, Schuylkill, Snyder, Somerset, Sullivan, Susquehanna, Tioga, Union, Venango, Warren, Washington, Wayne and Westmoreland.

There are a few oddball counties that have to be different and thus the annual assessment appeal deadline for Berks County is August 15, 2018 and Wyoming County is August 31, 2018. Philadelphia County is not a specific date, but instead the annual appeal deadline is the first Monday in October. Allegheny County is the only county that has a deadline, March 31, that is actually during the year that you are appealing. Thus, the appeal deadline for tax year 2019 in Allegheny County is March 31, 2019.

Each county has its own separate set of local rules pertaining to assessment appeals that need to be navigated in order to successfully file an annual assessment appeal.  If you own or lease commercial or industrial properties in Pennsylvania, please make sure that you are aware of these appeal deadlines. Additionally, if you are not sure if you should file an appeal on your property, please contact either Paul Morcom at 717-237-5364 or Randy Varner at 717-237-5464 to determine if an appeal is warranted for tax year 2019.

SB 1056, amends the Tax Reform Code to align state law with the federal law’s 100% bonus depreciation. Signed in the House and the Senate on June 22, 2018.

SB 735, would amend the Real Estate Tax Sale Law to establish an optional County Demolition and Rehabilitation Fund in certain counties, funded by the fee assessed for properties sold for delinquent taxes. The fund would be used for the demolition or rehabilitation of dilapidated buildings on blighted properties. Authorizes fee no greater than 10% of the assessed value of the property being sold for delinquent taxes. Final Passage in the Senate on June 22, 2018.

SB 653, would amend the Local Tax Enabling Act, to further consolidate the collection of local, non-real estate taxes at the county regional level, as was done with the collection of Earned Income Taxes under Act 32.

HB1511, would amend the Tax Reform Code, in hotel occupancy tax applying the state sales and the local hotel occupancy tax to the full price paid by the consumer at the point of sale for booking a hotel room (not the lower price paid by on line travel companies such as Orbitz, Travelocity, Expedia to hotels). Establishes the Hotel Tourism Fund, into which tax collected by intermediaries would be deposited and disbursed upon appropriation for tourism. Voted favorably as amended from House Finance Committee, first consideration in House. Re-referred to House Rules.

SB1214, was introduced and referred to the Senate Finance committee on Friday. SB1214 would amend the Film Tax Credit (FTC) Program within the Tax Reform Code.   The legislation proposes to create additional incentives for related Pennsylvania companies to utilize film tax credits without having to transfer or sell those credits to an unrelated business.  It would allow a corporate taxpayer who receives film tax credits to allocate those credits among its parent or sister companies that are part of the same consolidated federal income tax group.

Also, on Friday,the Senate Finance Committee unanimously voted out the nomination of Paul Gitnik to the Board of Finance and Revenue. The nomination now moves to the Rules and Executive Nomination Committee. Mr. Gitnik’s bio is shown, below.

PAUL J. GITNIK

Paul J. Gitnik is an Energy attorney with Pittsburgh law firm Keevican, Weiss, Bauerle and Hirsch. In 2011, Mr. Gitnik founded ShaleEnergyUSA.com, Inc. With its three interconnected websites – www.ShaleEnergyUSA.com, www.MarcellusUSA.com and www.UticaUSA.com – ShaleEnergyUSA.com provides resources and tools, including the recorded oil-gas leases, royalty percentages, dates, documents, instruments, permits, well dates, records, regulations and information about Shale Oil-Gas in the Appalachian Basin.

Earlier in his career, in 1991, Mr. Gitnik founded SOCRATES, INC., which provided claims recovery outsourcing, technology and consulting services and solutions to the health payor industry which he sold in 2007. Mr. Gitnik stewarded the development of SOCRATES, INC.’s proprietary Subrogation Outsourcing Case Review and Tracking Empowerment System (“SOCRATES”) and the MY SOCRATES family of proprietary software programs.
Mr. Gitnik was on the adjunct faculty of Duquesne University School of Law, where he taught Business Planning; Mercyhurst College, where he taught Estate Planning; and Penn State Continuing Education for Accountants, where he taught Choice of Business Entities.

Active in the community, Mr. Gitnik is or has been a member of numerous nonprofit boards, including the Allegheny County Bar Foundation, Allegheny Regional Asset District Board, Animal Friends, Phipps Conservatory and Botanical Gardens, Pittsburgh Opera, Pittsburgh Mercy Foundation, Diocese of Pittsburgh Foundation Advisory Board, Hamot Health Foundation, St. Vincent Health Center, Preservation Pennsylvania, Erie Art Museum and Jefferson Health System.

Quick Links: The Department of Revenue has published in The Pennsylvania Bulletin the real estate valuation factors which are to be used for Pennsylvania Realty Transfer Tax purposes from July 1, 2018 to June 30, 2019.

 

In a widely anticipated decision in the state tax world, the United States Supreme Court, in South Dakota v. Wayfair (June 21, 2018), has struck down the sales tax physical presence standard set forth in Quill Corp. v. North Dakota, 504 U.S. 298 (1992), and National Bellas Hess, Inc. v. Department of Rev. of Ill., 386 U.S. 758 (1967). Under Quill, an out-of-state seller’s liability to collect and remit sales tax to the consumer’s state depended on whether the seller had a physical presence in the state. After Wayfair, there is no longer a physical presence standard.

 

In Wayfair, the underlying issue was a statute passed by South Dakota which required sellers that deliver more than $100,000 worth of goods or services into the state on an annual basis, or engage in 200 or more separate transactions for the delivery of goods and services into the state on an annual basis, to collect and remit sales tax. Top online retailers filed an action challenging the statute.

 

The Court, in a majority opinion authored by Justice Kennedy (and joined by Justices Thomas, Ginsburg, Alito and Gorsuch), found that the physical presence rule is unsound and incorrect. First, the Court found that the physical presence rule is not a necessary interpretation of the requirement that a state tax must be “applied to an activity with a substantial nexus with the taxing State.” Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977). Second, it found that Quill creates rather than resolves market distortions. Finally, the Court concluded that Quill imposes the sort of arbitrary, formalistic distinction that the Court’s modern Commerce Clause precedents disavow.

 

In the opinion, the Court noted that when the day-to-day functions of marketing and distribution in the modern economy are considered, it becomes evident that Quill’s physical presence rule is artificial, not just “at its edges,” Quill, 504 U.S. at 315, but in its entirety. Modern e-commerce, the Court reasoned, does not align analytically with a test that relies on the sort of physical presence defined in Quill. The Court concluded that it should not maintain a rule that ignores substantial virtual connections to the state.

 

On the policy front, the Court noted that the physical presence rule was an extraordinary imposition of the judiciary on the states’ authority to collect taxes and perform public functions. Bluntly, the Court stated that helping customers evade a lawful tax unfairly shifts the tax burden to customers who purchase items from an in-state seller. By giving online retailers an arbitrary advantage over their competitors who collect sales taxes, the Court reasoned, the physical presence rule has limited the states’ ability to seek long-term prosperity and has prevented market participants from competing on an even playing field. The majority rejected arguments that stare decisis should preclude the Court from overruling National Bellas Hess and Quill, reasoning that adherence to precedent should not support the Court’s prohibition of a valid exercise of the states’ sovereign power; in fact, the Court should be vigilant in correcting such an error.

 

Justice Roberts was blunt in his dissent, arguing that stare decisis should apply due to market participants making decisions on the decades-old physical presence test. Justice Roberts also warned that the majority decision could detract from e-commerce’s “significant and vibrant part of our national economy.” He reasoned that the Court should not act on this important question of current economic policy, solely to expiate a mistake it made over 50 years ago.

Many questions now exist going forward. How far can states now go under the first prong of Complete Auto, which requires a substantial nexus with the state before the state may impose a tax? Will states attempt any “look back” assessments? What dollar threshold, or number of transactions, will trigger nexus under Complete Auto? Will states offer vendor allowances/discounts for online retailers’ collection of tax?

The McNees State and Local Tax Team will continue to monitor developments and will keep you updated.

Tax Practitioners and Finance VPs should keep an eye out this week  for significant activity coming out of the Pennsylvania  legislature  that will  align the PA tax structure with that of the feds—in some areas.

The House Finance Committee will vote on  June 19 on SB 1056, which will align PA bonus depreciation with the feds for property placed in service after September 27, 2017.

The recently enacted Federal Tax Cuts and Jobs Act makes major changes to corporate income taxes, one of which is that C-corporations will be able to deduct 100% of the cost of their capital investments (e.g. plant and equipment) immediately, for the next five years. The federal 100% bonus depreciation rule applies through 2022 and then will be phased down over the succeeding five years. In response to the new federal bonus depreciation rules, the Pennsylvania Department of Revenue issued Corporation Tax Bulletin 2017-02. The bulletin interprets certain sections of Pennsylvania tax law as requiring the amount of a 100% deduction under federal rules to be added back to Pennsylvania taxable income and provides no additional mechanism for cost recovery with respect to the qualified property until it is either sold or disposed of in some other manner. The bulletin not only “decouples” Pennsylvania from the federal rules, but it denies businesses the ability to claim depreciation deductions indefinitely. By disallowing this important deduction indefinitely, Pennsylvania would be unique among states and would create a business climate that discourages investment and spawns economic contraction rather than opportunity and expansion.

The House Finance Committee will vote on June 20 on  HB 2303, which would permit the executor or administrator of a decedent’s estate to elect to file a combined annual income tax return for an estate and revocable trust during the period the estate is open. Under federal law, the estate of a decedent who dies with a revocable trust in place can elect to file a single annual income tax return (Form 1041) that reports income earned by both entities (the estate and trust). Pennsylvania does not permit this practice so that a decedent’s estate and revocable trust are required to file separate income tax returns (Form PA 41) to report income earned by each during the year.

 

The Pennsylvania State Tax Equalization Board has released the Common Level Ratio (“CLR”) real estate valuation factors for 2017.  The common level ratio is the ratio of assessed value to market value used to value properties in a particular county for property tax purposes, and is used for purposes of appealing property tax assessments.  Click on the following link A6383603 to see the 2017 CLR list.  To determine if your property is currently over-assessed – take the properties current assessed value and divide it by the CLR.  This will give you your property’s current implied fair market value.  If you know that your property’s current fair market value is for example $100,000 (based on a recent appraisal value) and the current implied fair market value is $200,000, then your property is over-assessed and an annual assessment appeal should be filed to lower your assessed value and consequently your real estate taxes.  If you have any questions regarding the CLR and how to determine if your property is over-assessed, please call Paul Morcom (717-237-5364) or Randy Varner (717-237-5464) to discuss.

 

Lancaster, Pa. – (February 13, 2018) Nissin Foods topped the list of over 5,200 Lancaster County property owners that successfully appealed their assessed values.  The Nissin plant on Hempland Road in East Hempfield Township originally had an assessed value of $15,686,900 after the county-wide reassessment and due to a successful appeal, the new assessed value is $9,390,000 – a reduction of $6,290,900.  Representing Nissin in this appeal was Paul Morcom of McNees Wallace & Nurick LLC.

Paul has more than fifteen years of experience in state and local tax litigation.  Although Paul has significant experience in all state and local taxes such as sales/use, corporate net income, franchise, PURTA, gross receipts, gross premiums, realty transfer and personal income, most of his practice focuses on real estate tax.  Paul has successfully represented clients in real estate tax matters in 28 of Pennsylvania’s 67 counties.

Paul’s other recent real estate tax successes are as follows:

●   negotiated a $5,837,000 reduction in assessed value for a retail store in Allegheny County in December 2017, saving company $233,000 of real estate taxes per year;

●   received exempt status for non-profit in Cumberland and Lancaster Counties in November 2017, saving company $2,500,000 of real estate taxes per year;

●   negotiated an $84,609,800 reduction in assessed value for an industrial property in Blair County in March 2017, saving the company $1,100,000 of real estate taxes per year;

●   negotiated an $85,862,500 reduction in assessed value for a retail store in downtown Philadelphia in August 2016 saving the company $1,150,000 of real estate taxes per year; and

●   negotiated exempt status for two properties owned by a nursing home in Montgomery County in December 2016, resulting in $981,000 of refunds for real estate taxes paid in years deemed exempt and $337,400 of tax savings per year going forward.

Paul also coauthors the leading assessment treatise in Pennsylvania – Assessment Law & Procedure in Pennsylvania, which is published by The Pennsylvania Bar Institute every two years.  Be on the lookout for the 16th Edition, which will be out in the Spring of 2018.

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McNees is a full-service law firm based in central Pennsylvania with more than 130 attorneys representing corporations, associations, institutions and individuals. The firm serves clients worldwide from offices in Harrisburg, Lancaster, State College and Scranton, PA; Columbus, OH; Frederick, MD; and Washington, D.C. McNees is also a member of the ALFA International Global Legal Network.

www.mcneeslaw.com | @McNeeslaw | LinkedIn

 

On December 22, 2017, the Pennsylvania Department of Revenue (“Department”) issued Corporation Tax Bulletin 2017-02, which announced that Pennsylvania will no longer allow the 100% deduction for depreciation of qualified property under IRC § 168(k) for property placed in service after September 27, 2017.  Accordingly, any taxpayers who take advantage of the 100% bonus deduction for federal purposes must, when computing its Pennsylvania corporate net income tax, add the 100% bonus deduction to income.  Additionally, the Bulletin notes that the taxpayer may take an additional deduction when the qualified property is sold or otherwise disposed of during a taxable year to the extent the amount of depreciation claimed has not been fully recovered.

On January 22, 2018, Representative Francis Ryan, realizing that the Department’s approach to bonus depreciation is not necessarily business friendly at a time when Pennsylvania is trying everything possible to attract businesses to invest in Pennsylvania, introduced House Bill 2017.  That bill changes the definition of taxable income to include the deduction for depreciation of qualified property equal to the depreciation on the qualified property for the taxable year and determined in accordance with sections 167 and 168 of the Internal Revenue Code of 1986 (26 U.S.C. §§ 167 and 168) without regard to section 168(k) of the Internal Revenue Code of 1986 (26 U.S.C. § 168(k)).

If you are in favor of House Bill 2017, please contact Representative Francis Ryan and let him know.  We will follow the progress of that bill and update you as necessary.