Due in large part to the number of individual taxing jurisdictions within the Commonwealth, Pennsylvania businesses that operate in multiple jurisdictions have struggled for years with determining where they may be subject to a local mercantile or business privilege tax. However, a current House Bill that aims to provide guidance for these multi-jurisdictional taxpayers appears to be gaining support from lawmakers.
One of the powers granted to political subdivisions under the Commonwealth's Local Tax Enabling Act (P.L. 1257, No. 511) was the power to levy a tax upon a business for the privilege of doing business within its jurisdiction. Unfortunately, because the Act was originally enacted in 1965, it did not address concerns of modern-day businesses, especially those operating in multiple jurisdictions. Lawmakers have introduced legislation in the past in attempts to establish consistency among the subdivisions, but none of the proposals made their way into the law. Due to the ambiguity in the law, the Pennsylvania courts have been called upon to determine a jurisdiction's authority to impose its business privilege tax on a nonresident business that operates within its borders (V.L. Rendina Inc. v. City of Harrisburg and Harrisburg School District). For more information on the Rendina case, please refer to previous Schneider Downs articles, Pennsylvania Senate Passes Legislation Regarding "Base of Operations" for Business Privilege Tax and On the Radar: Pennsylvania Business Privilege Tax Revisited.
Perhaps the current House Bill, No. 1513, will be the catalyst for removing the ambiguity surrounding the applicability of local business privilege taxes and providing businesses with the guidance the prior law overlooked. In its current form, the bill appears to establish a bright-line test for determining the number of days a business must operate within a jurisdiction before it will be subject to the tax, as well as a universal definition of the term "base of operations" as it relates to business conducted within a jurisdiction.
We will continue to track the progress of House Bill 1513 and will provide updates as they become available. Please be sure to visit the Schneider Downs State and Local Tax page frequently to ensure that you have access to the most up-to-date information on this issue.
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