Pennsylvania Tax Update

1. State & Local Update Presentation to MACE June 20, 2019 Presented by: Stuart A. Katz, CPA, MST skatz@friedmanllp.com267-886-1742

2. Pennsylvania Tax Update • Marketplace Sales-Notification (‘Tattletale”) Law • Internet sellers and “marketplace facilitators” who do not maintain a place of business and who don’t collect PA sales tax but made at least $10,000 in sales to PA customers in the past calendar year must file an election by March 1st2018 in which they will either: • Agree to collect PA Sales tax by April 1st 2018, or • Commit to sending “use tax notices” notices with respect to each sale along with annual summaries of purchases which must be sent to purchasers and the PADOR • Law Applies to: • Marketplace Facilitators • Remote Sellers • Referrers

3. Marketplace Sales For those who elect to comply with the notification law instead of collecting tax, they must: • Post a conspicuous notice on their forum informing potential purchasers that that PA use tax might be due • Provide a written notice to each purchaser of TPP at the time of sale that PA Sales tax was not charged and the purchaser may be liable for Use tax • Provide an annual written notice, sent via first class mail to each purchaser of TPP disclosing their purchases made during the previous calendar year, informing them that PA tax was not collected and might be due, etc • Provide an annual report to PADOR by January 31 of each year containing information on purchases of TPP (names, addresses, etc) and the aggregate amount of their purchasers from the remote seller Noncompliance penalty equal to lesser of $20,000 or 20% of PA total sales during the past 12 months • Which is more of a headache? Complying with the PA Sales tax law or new Notification law? • PA is not unique although the $10K threshold is low

4. CNI Changes • Flat cap of $5M NOL Deduction removed per the Nextel decision • Annual Percentage NOL applies as follows: - Tax years beginning in 2017 30% - Tax years beginning in 2018 35% - Tax years beginning in 2019 and thereafter 40%

5. Other Miscellaneous PA Updates Bonus Depreciation Decoupling (CNI only) • Corporate taxpayers who claim bonus depreciation on assets placed in service after 09/27/17 must recalculate depreciation on MACRS assets suing regular MACRS rules • Overturns CNI Bulletin 2017-02 which would have denied all depreciation for CNI purposes until asset disposed of • No effect on PIT (S corps and Partnerships). PADOR’s position is that PIT taxpayers must calculate depreciation using straight-line method when bonus depreciation is claimed on Federal return • Petition period for reassessments and appeals to BF&R shortened to 60 days • Tax Credits – must be in compliance for all taxes to be approved • PTE’s cannot deduct charity • DOR Audit projects

6. Philadelphia Tax Update • Wage Tax Reduction Starting July 1st 2019: - New rate for residents is 3.8712% - New rate for non-residents is 3.4481% • Realty Transfer Tax: Increased to 3.278%; decreased to 3.178% in 2037 • Bill No. 180600-A: Designated Philadelphia Keystone Opportunity Expansion Zone (not the same as federal QOZ) • Bill No. 171009: Real Estate Tax – no accrual of additions, interest and penalties provided the taxpayer has timely appealed the assessment with BRT and paid 100% of the prior year’s tax by March 31st of the current year • Bill No. 108909: Increases the LCF period from 3 to 20 years –awaiting approval from state legislature • Pending Bill No. 190358: If taxable receipts are reduced to zero for a given tax year due to the statutory exclusion, taxpayer will not be required to file a BIRT return. If passed, will apply to tax year 2020 and thereafter

7. Philadelphia Tax Update (Cont’d) • New efile/epay website launched this year –site works with all browsers • Starting with 2019 DOR will determine the amount of U&O tax due using property assessments for same calendar year • PHIDOR published guidance on telecommuting and bonus depreciation (see separate .pdf) • BIRT Prepayments –for businesses starting in 2019: - First year BIRT filing –no estimated tax payments required toward the second year return - Second year BIRT filing –the business is allowed the option to make four quarterly estimated payments toward the third year return - Third year BIRT filing and thereafter – 100% estimated payment with current year’s return

8. Telecommuting Philadelphia uses a “requirement of employment” standard for City Wage Tax, applicable to all non-residents whose base of operations is the employer’s location in Philadelphia • Non-resident is exempt from wage tax when the employer requires him/her to perform a job outside Philadelphia • Non-resident who works from home for the sake of the employee’s convenience is not exempt from the wage tax – even with the employer’s authorization – see guidance on website

9. Other – Philadelphia Bonus Depreciation By law Philadelphia is required to follow Pennsylvania rules on federal bonus depreciation. Pennsylvania and therefore Philadelphia have decoupled form 100% federal bonus depreciation (immediate expensing) for qualified property placed into service after 09/27/17 and before 01/01/2023 • 100% bonus is added back • Normal depreciation is allowed, except 168(k) Installment Sale Philadelphia “Method B” federal-method filer follows federal so that gain can be reported on the installment method. 100% of the gain is reported for gross receipts tax portion. NPT is not as clear cut.

10. Other –Philadelphia (Cont’d) • No Section 199A deduction for BIRT or NPT • Sec 163(j): If federal interest expense is limited; so is BIRT but if merely passed through on K-1; should be a reduction to net income base • Wayfair Decision, BIRT and Philadelphia Sales Tax: No direct impact on Philadelphia's 2% sales tax but case led to City promulgating a new regulation – Section 103 addressing new nexus and active presence standards and creation of economic presence test for years beginning January 1, 2019 and thereafter

11. Local EIT Act 18 of 2018 – Amends Act 32 -what does it do? • Crediting- restores pre-Act 32 guidance on crediting; provides full credit for taxes paid to another jurisdiction to be applied against the entire home resident EIT limited to the lesser of the remaining credit after to PIT, or the actual EIT on the same income taxed by both jurisdictions • Estimates-establishes a safe harbor for estimated taxes as at least 100% of the prior year’s EIT or 90% of the current year’s EIT, having been paid in four equal installments • 90-day-rule; creates some “bright –line guidance” for what is a non-resident tax location when a worker is assigned to a temporary job site for at least 90 (consecutive) days • Objective oversight by DCED of disputed interpretations or application of local EIT since enactment of Act 32 in 2008

12. Local EIT 5. Expanded W-2- requires employer to indicate the 6 digit PSD code in box 20 for the taxing jurisdiction and, if applicable the two digit code for the county where the collected EIT is reported/remitted by the employer 6. Filing exemption –taxpayers with no earned income will have no filing requirement and can file a “final” return 7. Requirement of standardized forms by 2020 8. Prohibits use of contingent audit fees 9. Provides collectors with the express authority to abate penalties quickly and promptly resolve matters

13. Local EIT PA Act 150 of 2016 • Prohibits imposition of a penalty for failing to submit a timely estimate for which NO Payment is due • Prohibits imposing a penalty on a taxpayer unless the tax collector/TCC has issued a letter of noncompliance/timely filing and the taxpayer has not complied/taken corrective action within 30 days • Provided estimated requirement relief to farmers • Provided technological requirement relief to Amish Note-Act 150 provides no restive implication on the running of interest assessed on past-due,late or delinquent amounts

14. Local EIT New initiatives • Statewide Collection Feasibility –report issued in December 2018 • Get collectors onto MEF for Efiling • K-1 issues –PA-40 line 4 match inquiries • Collector pre-assessments before verification of tax deficiency • EIT audit letters during busy season • Likely that suburban counties will consider another attack of Philadelphia’s “super credit” status to attempt to bring more tax dollars back out of Philadelphia