On August 20, the Pennsylvania Department of Revenue issued Corporation Tax Bulletin 2018-04, which announces the Department’s position regarding the scope of taxable and nontaxable telecommunications receipts for Gross Receipts Tax (“GRT”) purposes based on the Pennsylvania Supreme Court’s decision in Verizon Pennsylvania, Inc. v. Commonwealth, 127 A.3d 745 (Pa. 2015), and Act 52 of 2018, which provides a statutory exclusion for receipts from certain equipment and accessories (“Equipment”).  Act 52, which took effect on June 28, 2018, excludes receipts from “the sales of telephones, telephone handsets, modems, tablets and related accessories, including cases, chargers, holsters, clips, hands-free devices, screen protectors and batteries” from the tax base and applies retroactively to gross receipts from transactions occurring on or after January 1, 2004.  Act 52 further provides that “no claim for refund or credit for a tax paid prior to [June 28, 2018]” shall be based on the Act, which creates a potential uniformity issue.

The Bulletin provides the following non-comprehensive sample of sales of services and equipment generating taxable receipts:

(1) End user charges, including costs, fees, and surcharges itemized on a customer’s bill (e.g., subscriber line charges and gross receipts tax surcharges).

(2) Directory Assistance.

(3) Late payment fees.

(4) Non-recurring charges, including termination, installation, repairs, moves and changes to service.  Non-recurring charges include any charges for wires, switches, connectors, or similar property provided as part of the termination, installation, repairs, moves and changes to service.

(5) Enhanced telecommunications receipts, including voicemail, call forwarding, call waiting and custom ringtones.

(6) Receipts from sales of service using voice over Internet protocol (VOIP).

(7) Receipts from paging services.

(8) Receipts from sales and leasing of private lines and private networks, including dark fiber.

(9) Receipts from sales and leasing of equipment and property, except for excluded Equipment charges (see below).

The following is a comprehensive list of authorized GRT deductions per the Department:

(1) Receipts from sales of internet service to the ultimate consumer and sales of service exempt under the Internet Tax Freedom Act.

(2) Resale receipts from persons subject to GRT on the resale of the telecommunications.

(3) Sales tax collected by the taxpayer.

(4) Distributions to a telecommunications provider from the USF authorized by USAC.

(5) The uniform 911 surcharge.

(6) Bad debt, provided the taxpayer satisfies the conditions established in Corporation Tax Bulletin 2011-02.

(7) Receipts from sales and leasing of telephones, telephone handsets, modems, tablets and related accessories, including cases, chargers, holsters, clips, hands-free devices, screen protectors and batteries.

 

 

 

 

 

 

 

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.