OUR THOUGHTS ON:

Pennsylvania Senate Passes Legislation Regarding "Base of Operations" for Business Privilege Taxes

State and Local Tax

By Jack Stewart

Last week the Pennsylvania Senate passed legislation designed to clarify when a local municipality may impose its business privilege tax. Since the Pennsylvania Supreme Court’s decision in V.L. Rendina, Inc. v. City of Harrisburg and the Harrisburg School District in 2007 (“Rendina”), there has been much confusion regarding this issue. The current legislation is designed to restore what tax practitioners believed to be the correct interpretation of law prior to the Pennsylvania Supreme Court’s 2007 ruling in Rendina.

The language in Senate Bill 405 would clarify that a local taxing jurisdiction may only impose a mercantile or transaction tax measured by gross receipts on the privilege of doing business within a taxing jurisdiction, if the privilege of doing business is exercised through a base of operations within the local taxing jurisdiction. If a taxpayer has more than one base of operations, the local taxing jurisdiction shall only be able to tax the gross receipts generated by the base of operations located within that local taxing jurisdiction.

The bill defines the term “base of operations” as an actual, physical and permanent place of business operations from which a taxpayer manages, directs and controls its business activities at that location and shall not include a structure that is utilized in a municipality for the purpose of overseeing construction for the duration of the construction process.

The bill now goes to the House of Representatives for consideration.

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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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