Legislation Targeted to Fix Business Privilege Tax Decision

State and Local Tax

By Matthew Dodge

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Pennsylvania State Senator Pat Browne intends to introduce SB 601 that is intended to clarify that a permanent place of business or base of operations is needed to subject a company to a business privilege tax within a municipality.

This bill is in response to the Pennsylvania Supreme Court’s decision in V.L. Rendina, Inc. v. City of Harrisburg and the Harrisburg School District that we first reported in the Schneider Downs’ State and Local Tax Insights - Winter 2008 issue. The Pennsylvania Supreme Court in its decision determined that a “base of operations” was not required for a jurisdiction to impose a business privilege tax on a contractor’s activities within a municipality. As a result, many companies could be subject to a business privilege tax in jurisdictions where they have activity but no permanent place of business or base of operations. This decision has created uncertainty and exposure for many companies with business activity in municipalities where they do not have a base of operations.

SB 601 specifically seeks to repeal the Rendina decision by amending the Local Tax Enabling Act, and only allow the imposition of a privilege tax on businesses with a base of operations within the taxing jurisdiction. The bill defines the term “base of operations” as “an actual, physical and permanent place of business from which a taxpayer manages, directs or controls its business activities at that location.” If the bill is passed in its current form, it would be applied retroactively to the date of the state supreme court’s decision in the Rendina case, December 27, 2007.

We will keep you updated on developments related to SB 601.

Timothy Adams participated in the development of this article.

Schneider Downs provides accounting, tax and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh and Columbus.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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