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More corporations will have to file PA State tax returns beginning in 2020

January 28, 2020

Corporations with sales in Pennsylvania but no physical presence may have to now file PA State tax returns

The Pennsylvania Department of Revenue has expanded the number of corporations that will have to file Pennsylvania State tax returns. Beginning in tax year 2020, any corporation that does not have a physical presence in Pennsylvania but has at least $500,000 in annual sales will be required to file a Pennsylvania state corporate income tax return and pay Pennsylvania state corporate income tax.

The decision is based on the June 2018 U.S. Supreme Court decision in Wayfair v. South Dakota, 138 s. Ct. 2080, 201 L. Ed. 2d 403 (2018). The decision ruled that a previous finding in Quill Corp. v. North Dakota, 504 U.S. 298, 306, 112 S.Ct. 1904 (1974) was unsound in that it necessitated a physical presence in the state to collect state tax. Essentially, no physical presence standard exists to limit the ability of a state to impose a net income tax on an out of state taxpayer, as long as all other requirements are met.

According the PA Department of Revenue’s Corporation Tax Bulletin 2019-04, issued September 30, 2019,

While all taxpayers with nexus under the Constitution of the United States should file a Corporate Tax Report with Pennsylvania, the Department will deem there to be a rebuttable presumption that corporations without physical presence in the state, but having $500,000 or more of direct or indirect gross receipts from any combination of the following, sourced to Pennsylvania per year pursuant to the sales factor rules contained in 72 P.S. § 7401, have a filing requirement with the Commonwealth for purposes of the Corporate Net Income Tax:

• • Gross receipts from the sale, rental, lease, or licensing of tangible personal property;
  • Gross receipts from the sale of services; and/or,
  • Gross receipts from the sale or licensing of intangibles, including franchise agreements.

Exemptions can still be claimed, but companies should still file the Pennsylvania Corporate Tax Return and then complete the necessary schedules to claim their exemption. Federal Law does exempt “Tangible personal property” such as furniture, jewelry and shoes.