October 18, 2019
The Center Square
The Pennsylvania Department of Revenue’s plan to dramatically increase the number of corporations being taxed has drawn reaction from lawmakers and think tanks.
The state agency recently made official its new rule requiring corporations earning at least $500,000 in annual sales without a physical presence in the state to begin filing a Pennsylvania corporate net income tax return.
The new provision, which kicks in for the 2020 tax year, is outlined in the department’s most recent tax bulletin, issued Sept. 30.
State Sen. Art Haywood, D-Philadelphia, is among the Pennsylvania lawmakers to weigh in on the change. In a tweet, Haywood said he believed there have been inequities in the amount corporations and personal property owners pay in taxes.
“(Three) of 4 PA corps pay no tax,” said Haywood, who serves on the Senate Finance and Appropriations committees. “Corps pay $3.4B (billion) and individuals pay $23B in PA taxes a year. That’s not fair.”
Several think tanks have also begun commenting on the change, including the Pennsylvania Chamber of Business and Industry.
In an interview with The Center Square, Sam Denisco, vice president of government affairs with the chamber, said the organization is in wait-and-see mode.
“It certainly expands the state corporate income tax base, but to what extent we don’t know,” Denisco said. “We’ve yet to know what that looks like. Right now, we’re just kind of looking at it from an analysis standpoint.”
Denisco also said the chamber would have preferred the DOR solicit public comment before issuing the decision in its tax bulletin.
In a statement provided to The Center Square, Nathan Benefield, vice president and chief operating officer with the Commonwealth Foundation, questioned the motivation behind the decision.
“The rule seems driven by the question, ‘How can the government collect more money?’ not whether it is legal, fair or concern for unintended consequences,” said Benefield, who wondered if the decision could face legal challenges in the road ahead.
In the statement, Benefield also took aim at the DOR decision because it creates more challenges for corporations considering doing business in Pennsylvania.
“We should be attempting to encourage more companies to do more business in this state,” Benefield said. “We can accomplish that by decreasing regulations that make it onerous for small and medium businesses to survive and by reducing our 9.99 percent corporate income tax – the third-highest state corporate tax rate in the country.”
Officials within the Pennsylvania DOR have not revealed how much additional income they anticipate bringing in with the new tax requirement, which comes on the heels of last year’s U.S. Supreme Court ruling on South Dakota v. Wayfair Inc., which dealt primarily with sales taxes.
Attempts to reach a DOR representative for comment for this story were unsuccessful. But the recent bulletin prominently mentions the federal decision and its playing into the state-level change.
“For Pennsylvania corporate net income tax purposes, the decision in Wayfair has confirmed that out-of-state corporations are considered to be doing business in the commonwealth and/or carrying on activities in this commonwealth to the extent they are taking advantage of the economic marketplace of the commonwealth, regardless of whether they are physically present in Pennsylvania,” a passage in the Sept. 30 bulletin states.
It continues, “As a result, the department will require such taxpayers to begin filing corporate tax reports, so long as they meet the minimum thresholds for nexus under the Constitution of the United States.”