On Thursday June 28, 2018, Pennsylvania Governor Tom Wolf signed into law Act 72 of 2018 (“Act 72”). Act 72 updates the Commonwealth’s corporate net income tax law relative to changes in depreciation expense under federal law as a result of the Tax Cuts and Jobs Act of 2017 (“TCJA”). We addressed the federal tax changes and the Pennsylvania Department of Revenue's initial position with regard to those changes in a previous OurThoughtsOn article.
Act 72 provides clarification on calculating taxable income for Pennsylvania corporate net income tax purposes when 100% federal bonus depreciation was taken on assets placed in service after September 27, 2018. Taxpayers simply add-back the 100% federal bonus depreciation, and deduct depreciation expense calculated under Internal Revenue Code Sections 167 and 168 without regard to Section 168(k). In other words, depreciation is recalculated for Pennsylvania corporate net income tax purposes as though federal 100% bonus depreciation did not exist.
The changes take effect immediately and are applicable for tax years beginning on or after January 1, 2017. Therefore, taxpayers that filed their 2017 corporate net income tax returns prior to the enactment of Act 72 may want to consider filing amended returns in order to capture the previously thought to be disallowed depreciation expense.
Please contact a member of our State and Local Tax group if you have any additional questions on how your company may be affected by the enactment of Act 72.