PA State Tax Update and Impact of Federal Reforms
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This document summarizes a presentation about Pennsylvania taxes. It introduces two speakers, Mark Heath and Lindsey Waltemyer, and outlines the agenda which includes an overview of Pennsylvania's budget and tax structure, impacts of federal tax reform, and recent case law. Specific topics discussed include proposed changes to corporate tax rates, sales tax extensions due to the Wayfair decision, and annual filing requirements for foreign entities operating in different states.
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PA State Tax Update and Impact of Federal Reforms
- 2. Visit our website for news and updates… www.macpas.com
- 4. Introductions Mark Heath ▰ Partner ▰ Areas of focus: Federal and State Income Tax Compliance for Corporations, Partnerships, and LLCs ▰ Individual and Trust Taxation ▰ ASC 740 – Accounting for Income Taxes – Calculation and Reporting for SEC Registrants and Privately- Held Companies Lindsey Waltemyer ▰ Tax Supervisor ▰ Areas of focus: State and local tax group leader: focusing in sales tax audits, state tax compliance, and state tax planning
- 5. Agenda ▰ ‘19-‘20 Pennsylvania state budget overview ▰ Highlights of recent Pennsylvania Department of Revenue updates, tax legislation and case law ▰ How does Pennsylvania’s tax structure compare to other states? ▰ Impact of federal tax reform on states ▰ Impact of Wayfair v. South Dakota ▰ Foreign Entity Qualification and Annual Reports
- 6. Governor’s Proposed ‘19-‘20 Budget ▰ No increases in personal income tax rates or sales tax rates ▰ Mandatory combined reporting for certain affiliated entities ▰ Reduction of the corporate tax rate ▰ Fee on municipalities that rely on state police for protection ▰ Increase in minimum wage ▰ Natural gas severance tax
- 7. Proposed State Operating Budget
- 8. What Sources Does PA Receive Its Revenue From?
- 9. Economic Outlook ▰ Real GDP projected to increase by 1.9% in both 2019 and 2020 ▰ Increased employment rates (65,600 new jobs in 2018) ▰ Wage growth rates exceeding 4%
- 10. Department of Revenue Updates, Legislation and Case Law
- 11. Department of Revenue Update ▰ Increase in total NAP credits available ▰ Second rollout of myPATH – Pennsylvania Tax Hub ▰ PA Reaction to Wayfair Ruling ▰ Nextel decision and guidance on NOL’s ▰ New Bonus Depreciation Form
- 12. Department of Revenue Update ▰ New Schedules C-8 & C-9 Old Schedule C-3
- 13. Proposed Pennsylvania Legislation ▰ House Bill 800 - to increase EITC credits ▻ Funding private and religious schools ▻ Vetoed by Governor Wolf ▻ Could be a budget negotiator ▰ House Bill 1549 – Brewery Tax ▻ Applies 6% sales tax at 25% of the retail value ▰ Tax Simplification Bill ▻ Combined state income tax return for an estate and revocable trust ▻ Eliminating state inheritance tax for children under 21 ▻ Income tax reciprocity agreement between NY and PA
- 14. Polling Question #1 ▰ What is the Pennsylvania state insect? ▻ The Firefly ▻ The ladybug ▻ The spotted lantern fly ▻ The Japanese beetle
- 16. How Does PA Compare?
- 18. Impact of Federal Tax Reform
- 19. State Conformity ▰ Starting point determines the effect of changes ▰ PA one of few states which conforms selectively ▰ Rolling v. Static Conformity
- 20. Pass-Through Section 199A Deduction ▰ Deduction for 20% of qualified business income, subject to various limitations. ▰ Deduction is only allowed in computing and reducing taxable income, not federal AGI – most states do not follow ▰ Examples of certain states: ▻ IA – starting 2019 tax year, allows 25% of the federal deduction ▻ CO, ID, & ND start with Taxable income and have not decoupled (MN if conformity date updated) ▻ OR and SC specifically decoupled
- 21. Limitation of Interest Deduction Federal interest deduction limited – Section 163(j) ▻ Limited to interest income plus 30% of adjusted federal taxable income ▻ For pass-throughs, carryforward is at partner/shareholder level ▻ Consolidated groups have a single 163(j) limitation A few main issues to consider: ▻ Does state follow federal or decouple? ▻ How does state treat carryforwards? ▻ How are consolidated groups treated?
- 22. Limitation of Interest Deduction ▻ Pennsylvania Treatment: ▻ On April 29, 2019 Pennsylvania issued Corporate Tax Bulletin 2019-03. ▻ In general – PA follows federal for the interest limitation ▻ Carryforwards ▻ Consolidated filers ▻ No Federal consolidated limit – no calculation needed ▻ Federal consolidated limit – each separate company member with a PA CNIT obligation will need to calculate limitations on a separate company basis. ▻ Including gross receipts test without elimination of related party receipts
- 23. Limitation of Net Operating Loss Deduction ▰ Federal NOL deduction limited to 80% of taxable income ▰ Pennsylvania already has a 35% of taxable income limit for 2018 (40% for 2019), as discussed in the Nextel case. It does not follow the Federal NOL deduction. ▰ Effect on other states ▻ Add back Federal NOL ▻ Start with Federal taxable income before the NOL ▻ Modify the Federal NOL
- 24. Full Expensing ▰ Section 168(k) bonus ▻ Immediately expense 100% of the cost of qualified property acquired ▻ PA: not allowed ▰ Section 179 Deduction ▻ Increased to $1 Million Deduction ▻ Phase-out increased to $2.5M of assets placed in service ▻ PA: follows for corp, $25,000 limit still applies for pass-throughs
- 25. SALT Deductions ▰ $10,000 limit on state and local taxes deducted on Schedule A. ▰ 6/11/19 – IRS finalized federal regulations on SALT Deduction ▻ Availability of charitable contribution deductions when the taxpayer gets a state or local tax credit ▻ Taxpayers must reduce their charitable contributions by state credits they receive. ▻ Effective 8/12/19 and apply to contributions made after 8/27/18. ▰ Risk to PA credit programs?
- 26. Polling Question #2 ▰ Which state first declared Independence day an official holiday? ▻ Massachusetts ▻ Delaware ▻ Pennsylvania ▻ Vermont
- 28. Wayfair v. South Dakota
- 29. Case Background ▰ Previous Rule ▻ Quill rule – physical presence ▻ Changing economy – many states had started to challenge this rule ▰ South Dakota Law ▻ Requires out of state sellers to collect and remit sales tax if SD sales exceed $100,000 annually or have at least 200 separate transactions. ▻ Court ruled in favor of South Dakota, overturning Quill.
- 30. States React to Wayfair ▰ South Dakota Copycats -$100,000 or 200 separate transactions ▻ AR, CO, DC, HI, IL, IN, IA, KY, LA, ME, MD, MI, NE, NV, NJ, NC, ND, RI, SD, UT, VA, VT, WA, WV, WI, WY ▻ ID, NM, OK, PA, SC – Only $$ requirement ▻ PA, WA require notice at $10,000. ▰ Over $250,000 or 200 separate transactions ▻ CT, GA (GA moves to $100,000 on 1/1/2020) ▻ AL, MS – Only $$ requirement ▰ Other ▻ AZ - $200,000 in sales, reduced in future years down to $100,000 ▻ MA - $500,000 in sales or 100 separate transactions ▻ NY - $300,000 in sales and 100 separate transactions ▻ MN - $100,000 or more with 10 or more retail sales or 100 separate transactions ▻ TN, CA, TX – over $500,000 in sales
- 31. Pennsylvania Reacts to Wayfair ▰ Before Wayfair: $10,000 notice and reporting requirements ▰ Post Wayfair: $100,000 collection requirement ▻ $10,000 - $99,999: Option to collect and remit or comply with reporting requirements ▻ $100,000: Must collect and remit ▻ No transaction limit ▰ Marketplace facilitators ▻ Organizations that contract with third parties to sell goods and services on its platform and collect payment on behalf of the seller (think Amazon) ▻ Also subject to $100,000 rule/$10,000 notice and reporting requirements
- 32. Steps to Take ▰ Review both number of transactions AND amount of sales in states with transaction threshold. ▰ Don’t forget there are other ways to have nexus! ▰ Consider taxability of transactions ▰ Oops – should you have been reporting? ▻ STOP! Should you do a VDA? When should you register? ▰ Do you have processes in place to handle additional requirements? ▰ Consider impact of Wayfair on sale or purchase of a business or financial statement considerations
- 33. Polling Question #3 ▰ Where is the oldest gas station in the US located? ▻ Philadelphia ▻ Harrisburg ▻ Altoona ▻ Lancaster
- 35. Presented by: John Beck & Sharon Cody John Beck ▰ Director of Marketing Strategy ▰ Areas of focus: Marketing, Partnership Development and Business Development Strategies for businesses Sharon Cody ▰ Partnership Manager ▰ Areas of focus: Develops strategic partnerships to promote compliance best practices
- 36. South Dakota vs. Wayfair
- 38. Potential reasons to qualify an entity in a new state?
- 39. What is the process?
- 40. Penalties of doing business without registration
- 41. t
- 42. What information is required? When are annual reports most commonly due? Are filings completed electronically or by paper? Quick Facts
- 43. California Statement of Information Indiana Business Entity Report Georgia Annual Registration Delaware Annual Franchise Tax Nevada Annual List of Officers Different Names
- 44. Questions? Mark Heath, CPA Partner & Director of Tax Services mheath@macpas.com Lindsey Waltemyer, CPA Tax Supervisor & SALT Leader lwaltemyer@macpas.com John Beck Director of Market Strategy jbeck@harborcompliance.com Sharon Cody Partnership Manager scody@harborcompliance.com
- 45. Thank you for attending! CPE certificates will be sent to the email address provided at registration within 2 weeks. www.macpas.com
Editor's Notes
- https://www.harborcompliance.com/blog/2018/07/09/online-retailers-and-state-sales-tax-after-south-dakota-v-wayfair/
- Sometimes considered Certificate of Authority, Certificate of Registration. Registering your legal entity, generally corporation or LLC, in a state outside of the state that it’s formed in. Example- Delaware formation, qualifies in the other 49 states + DC.
- Generating revenue in a new state Owning or purchasing property in a new state Having employees in a new state Paying taxes in a new state
- 65% of time, certificate of goodstanding required 6% of time, certified copies of articles required A few states / entity types require both (AZ, IL, MA) Occasionally, the filing will require you to publish in a newspaper (New York as a example)
- Penalties if doing business without registration. (TX, FL, CT, DE, TN). FL in particular, $700 per year penalty.
- When are Annual Reports most commonly due? Most commonly, annual report due dates are tied to the anniversary of formation We find that most entities are created in the first quarter of the year, but not by much (30%) Highest renewal month of the year is April Excluding anniversary and year end dates, 80% of annual reports are due in the first half of the year What information is required? Officer and Director information, Member / Manager, ownership in general Purpose statement. Stock information (authorized, par value, etc.) Virigiina, Illinois, Delaware and Arkansas take issued stock into consideration on their reports. Maryland and Wyoming take into consideration the assets held within the state Electronic or paper? The vast majority accept electronic filings. Some are only paper (PA, TX)