Pennsylvania Tax Reform Code Changes

State and Local Tax

By Allen Wassel

As part of the 2012-13 budget, Governor Tom Corbett also signed House Bill 761, which amends several sections of Pennsylvania’s Tax Reform Code of 1971. The changes expected to have the most widespread impact on Pennsylvania personal and corporate income taxes are as follows:

•   Permitting joint personal income tax return filing in the year of a spouse’s death and in cases where both spouses die during the same year.
•   Excluding family farm transfers between family members exempt from inheritance tax and realty transfer tax.
•   Requiring payers of amounts due under oil and gas leases to issue a form 1099-MISC to non-corporate recipients of such payments and imposing penalties for non/fraudulent filing.
•   Requiring all business income to be apportioned utilizing the single sales factor method for taxable years beginning after December 31, 2012.
•   Granting an automatic extension of time to file a Pennsylvania corporate income tax return to taxpayers who have received an extension of time to file their federal income tax return.
•   Increasing to six months, the amount of time a taxpayer has to report to the Department of Revenue, adjustments to federal taxable income as changed or corrected by the Commission of the Internal Revenue or by any    other agency or court of the United States.
•    Permitting taxpayers to file a petition for review of tax adjustment not resulting in an increase in liability. The petition may include a request for review of the department’s adjustment of a tax item if the adjustment did not result in a tax increase in the year of the adjustment but may increase the tax due in a subsequent year. The petition must be filed within 90 days of the mailing date of the department’s notice of adjustment.
•    Granting the Department of Revenue power to attach and seize funds in a taxpayer’s account that the department reasonably believes to hold property subject to a lien recorded in favor of the Commonwealth.
•    Expanding the scope of existing, and implementing new, tax credit programs:
                  •   The Job Creation Tax Credit now includes a credit of $2,500 per job for hiring previously unemployed workers.
                  •   The Neighborhood Assistance Tax Credit now includes donations to food banks. 
                  •   The Film Tax Credit now allows an additional 5% credit for certain expenses 
                  •   The Research and Development Tax Credit will now continue indefinitely. 
                  •   The Historic Preservation Tax Credit and Community-Based Services Tax Credit will become effective July 1, 2013.
                  •   The Resource Manufacturing Tax Credit, commonly referred to as the Cracker Credit, will begin in 2017. Please see our related Insight for details on the credit program. 

Proposed changes not enacted but expected to remain a focus for 2013-14 were closing the “Delaware Loophole” by disallowing certain royalty and interest payments to related parties, and gradually reducing the corporate net income tax rate to make Pennsylvania more competitive in its attempt to attract new businesses.

To discuss any of the above highlights, or for information on House Bill 761 in its entirety, or other Pennsylvania tax reform proposals, please contact a member of our State And Local Tax (SALT) team.

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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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