The McNees State and Local Tax Group will be presenting two upcoming webinars.  The first, on Thursday, January 31, 2019 from 12:00 p.m. until 12:45 p.m., will be presented by Randy L. Varner and Paul R. Morcom and will cover reverse audits and how they can help your bottom line.  More information, including instructions to register, can be found here:

The second, covering the Pennsylvania 2019-2020 tax proposals and budget, will be held on Thursday, February 7, 2019 from 12:00 p.m. until 12:45 p.m., and will be presented by Randy L. Varner and Sharon R. Paxton.  More information, including instructions to register, can be found here:

We hope that you are able to join us for one or both of these webinars.  Please hurry and register because space is limited!


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 is an Energy attorney with Pittsburgh law firm Keevican, Weiss, Bauerle and Hirsch. In 2011, Mr. Gitnik founded, Inc. With its three interconnected websites –, and – 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.

On November 16, 2017, the Pennsylvania Department of Revenue (“Department”) issued Corporation Tax Bulletin 2017-01 in order to clarify the Department’s stance on the net operating loss deduction.  The Department will revise its forms and procedures to implement the Pennsylvania Supreme Court’s decision in Nextel Communications of the Mid-Atlantic, Inc. v. Commonwealth of Pennsylvania, Dkt. No. 6 EAP 2016 (10/18/2017), which found that the $3 million cap on the net operating loss deduction (“NOL”) violated the Uniformity Clause of the Pennsylvania Constitution. The decision left in place the portion of the statute that limits the NOL deduction at 12.5% of taxable income for the 2007 tax year at issue.

On November 1, 2017, Nextel filed an Application for Reargument with the Court regarding the appropriate remedy to apply to the 2007 tax year. Accordingly, while this NOL issue remains open, the Department is taking a proactive approach to provide clarity to corporate taxpayers. Taxpayers are therefore advised that the flat-dollar cap on the NOL, currently at $5 million, will not be available for taxable years beginning in 2017 and thereafter. However, the NOL limitation of 30% of taxable income will continue to be effective for taxable years beginning in 2017.

Please contact a member of the McNees SALT Group if you have questions regarding the Pennsylvania NOL deduction or the Nextel case.


In an opinion released today, the Pennsylvania Supreme Court found the Commonwealth’s 2007 net loss carryover cap scheme–which limited the amount of loss a taxpayer cold carry over to 12.5% or $3 million, whichever was greater–unconstitutional. Nextel Communications of the Mid-Atlantic, Inc. v. Commonwealth of Pennsylvania, No. 6 EAP 2016 (October 18, 2017). The taxpayer in Nextel had argued that the statute was unconstitutional “as applied” to its situation, and had requested a refund of nearly $4 million.


The Court held that the cap, found in 72 P.S. §7401(3)4.(c)(1)(A)(II), had the effect of creating different effective tax rates and classifications in violation Article 8, Section 1 of the Pennsylvania Constitution, commonly known as the “Uniformity Clause.” The Court agreed with Nextel’s argument that the cap allowed “smaller” taxpayers to use deductions up to the $3 million limit that would result in no tax liability if the taxpayer had $3 million or less of income. On the other hand, the cap scheme would not permit the same treatment of large taxpayers with income of over $3 million. The “smaller” taxpayer base with 98.8% of all Pennsylvania taxpayers in 2007. As a result of this differential treatment, the Court found the cap unconstitutional.


The Court then turn its attention to the remedy. Nextel had argued that the only appropriate remedy would be for the court to award it the requested refund. The Court undertook a “severability analysis” which is required when addressing an “as applied” rather than “facial” challenge to a statute. Ultimately, the Court disagreed with Nextel’s remedy argument and instead severed the flat $3 million piece of the cap from the statute. Nextel was denied its requested $4 million refund.


The ramifications of this case are many and will severely impact small businesses that have heretofore relied on the flat dollar piece of the cap to offset most, if not all of their income. This will likely result in the General Assembly revisiting this topic to address important concerns like that one in a constitutionally permissible way. We will keep you updated on developments springing from this decision.

We are writing to update you on the status of budget negotiations in the Pennsylvania General Assembly that no longer includes the potential storage tax that we wrote about earlier this week but does include a new hotel tax. The idea of a hotel tax developed rapidly from closed door negotiations and caught the hotel and tourism industries by surprise.  As indicated in our McNees Client Alert and media coverage, there was a proposed storage tax in a revenue proposal circulating earlier in the week.  The opposition to this tax voiced significant concern about the broadly written language that would be detrimental to the logistics and warehousing industry as well as economies in Pennsylvania.  As a result, the idea lasted no more than a few days because there was not enough support for the revenue plan.  It came apart by Tuesday afternoon.  


After it emerged, the hotel tax idea and related revenue plan moved fast yesterday and was included in an omnibus amendment to the Tax Code.   Today House leaders continue their work to secure support to pass the new revenue plan including this hotel tax.  However, we expect this tax proposal to receive significant opposition much like the warehousing tax.  So, its future remains unseen. Meanwhile, expanded gambling remains part of the House revenue package. It is not clear if the Governor supports the hotel tax and other items in the revenue package.  


We are monitoring developments in the capitol today and will be reviewing language of the amendment to the Tax Code as well as other pieces of legislation that will be filed with respect to the budget. Please contact us should you have any questions. 



Urgent Alert from the McNees Wallace and Nurick Government Relations and State and Local Tax Groups

The Pennsylvania General Assembly continues to battle over revenue sources while the state remains without a complete state budget. And when it seems impossible, things actually continue to worsen with the House and Senate scheduled sessions to begin this afternoon. Over the weekend, the idea of a storage tax was discussed and it now seems to be more of a reality than a week ago.  And this tax is allegedly to replace a Marcellus Shale production tax.  This means the new targets for tax revenue are those who provide and use warehousing services and storage of items (“items” as defined by the proposed language seems to encompass almost anything) as well as anyone in the logistics business.  In essence, this tax would impose a 6% sales tax and have broad and expensive impact on almost every business. And the idea appears to be moving quickly through the capitol.


As covered in the media, the Pennsylvania General Assembly approved a budget spending bill without revenue sources at the end of June, and Governor Wolf allowed it to become law without his signature. Since then, lawmakers have fought over how to come-up with the $2.2 billion to pay for it.  Recently, the Republican-controlled Senate passed a revenue package that included more than $500 million in new taxes, including an extraction tax on shale gas drillers, new and increased taxes on consumer utilities such as electric, natural gas, telephone and expansion of the sales tax to online retailers. Also, the Senate plan would borrow against the tobacco settlement fund and include revenue from expanded gambling. Governor Wolf supported the Senate plan.


Most recently, the Senate rejected the House GOP’s no-new tax revenue plan that relied heavily on fund transfers and the sale of future tobacco settlement fund payments. Similar to the Senate plan, it included revenue from expanded gambling. Last week, it was expected that a conference committee process would begin soon.  This would be the most recent effort to settle the differences and write a new revenue bill.  However, the chambers and parties within them have strong positions on what should and should not be included for raising revenue.


The now fast moving issue that arose on Friday night during budget discussions in the Pennsylvania General Assembly involves a Storage Tax.  And, as of today, there remains uncertainty as to whether or not the language is written to reflect the intent of the tax.  This potential tax has been raised before during this year and in prior years under prior governors, but it was eventually pulled from the table.  However, it is now alive again and during a time of critical need for resolution on how to find revenue to support the already passed spending plan.  At this juncture, we believe there are a number of legislators opposed to the idea, including many in the south central caucus.  However, the idea appears to have enough support that it continued to be discussed through the weekend with potential for momentum beginning on Monday.


If this tax is passed, it will have a significant and expensive impact on many Pennsylvania businesses.   The draft language is very concerning because it appears to impact all businesses that provide warehousing and storage space as well as those who pay for storage space and warehousing services in PA.  Also significant is that it provides full discretion to the Commonwealth to implement, and, we expect the Department of Revenue to apply it very broadly in order to raise much needed revenue.


Some have argued in the past that a broad storage tax will result in layoffs and storage and distribution businesses closing and selecting other states to establish their business.  Others argue that a storage tax would result in consumers being double taxed when they purchase goods at the store and also when distribution centers pass along the storage tax to their consumers.  And, this tax would work against any efforts the Commonwealth or municipalities within it make to attract businesses to locate or expand in Pennsylvania because competing states could immediately look at least “6% cheaper” for doing business.  For example, it does not seem logical that Amazon, which is looking for a second headquarters in North America, would even consider a proposal from the Commonwealth if this tax is a reality and applicable to their business.


Clearly this will be very detrimental to the warehouses and trucking hubs that line Interstates as well as their clients.    In fact, this could affect the national supply chain that some argue already exists in Pennsylvania’s warehouse industry.  And, we expect it will also be very bad for business in the energy, gas industries such as refineries, those who are wet gas midstream operators and/or in the business of ordinary storage of gasoline, etc. as well as increase costs for Pennsylvania’s agriculture industry and food distributors.


Please contact us should you wish to discuss in detail.  We believe time is of the essence as the General Assembly works on closing the gap between its spending plan and funding sources.   We recognize the challenges for the state to find revenue. But we also know our clients and the challenges they already face with increased costs of doing business in PA.  McNees Wallace & Nurick’s Government Relations and State and Local Tax practice groups are working to help clients who oppose a storage tax.  Please contact us should you have interest in talking with legislators regarding the impact of a storage tax on your business.

The McNees State and Local Tax team regularly posts timely and important Pennsylvania tax information on Twitter.  Please give us a follow!

Randy L. Varner  @RandyLVarner

Sharon R. Paxton  @SharonPaxton7

Paul R. Morcom  @MorcomPASALT