On July 13, 2016 Governor Tom Wolf signed Act 84 of 2016 - tax code changes that are estimated to generate more than $750 million in new revenue. The Act is the most significant PA tax bill since 2013. Although it does not include a broad-based tax increase or a major overhaul of the tax system. There are, however, significant modifications including: 1) sales tax changes; 2) another amnesty program; 3) amended corporate return rules; and 4) eight new tax credits. The following is a summary of several of the major aspects of Act 84.
Sales and Use Tax
Expansion of sales tax base to include digital downloads
Effective August 1, 2016 the definition of tangible personal property subject to sales and use tax will now include “video; photographs; books; any other otherwise taxable printed matter; applications, commonly known as apps; games; music; any other audio, including satellite radio service; canned software, notwithstanding the function performed; or any other otherwise taxable tangible personal property electronically or digitally delivered, streamed or accessed.” These items are subject to tax “whether electronically or digitally delivered, streamed or accessed and whether purchased singly, by subscription or in any other manner, including maintenance, updates and support.”
These are significant changes and additional guidance will be needed. We understand that the PA Department of Revenue will be studying these new rules and will soon be developing written guidance, including Frequently Asked Questions.
Capping the vendor discount
Effective for returns due August 20, 2016 the discount for timely filing sales tax returns, which was previously 1% of the sales tax liability, will be capped at the lesser of 1% of sales tax collected or 1) $25/return for monthly filers; 2) $75/return for quarterly filers; or $150/return for semi-annual filers. Therefore, going forward the discount will be capped at $300 annually, which will result in a significant lost benefit for large retailers.
Corporate Tax Report Changes
In response to lobbying by the Pennsylvania Institute of CPAs and some recent court cases, Act 84 now requires the PA Department of Revenue to act on an amended return within one year of its filing. If they fail to do so within that period, the amended return will be deemed accepted by the DOR. A taxpayer now may also file a petition (within 90 days of their notice) for review with the Board of Appeals if it disagrees with the DOR’s action on the amended return.
Also, filing an amended return extends the statute of limitations for assessments by one year from the date the amended return is filed. This differs from filing a petition for refund with the Board of Appeals which does not extend the statute of limitations.
Filing due date
In order to take into account recent changes in the federal due date of calendar year-end corporate tax returns from March 15 to April 15, Act 84 extends the deadline to file the Pennsylvania corporate tax report to 30 days after the federal filing deadline. This is effective for tax years beginning after December 31, 2015.
Tax Credits and Incentives
New credits and incentives
Act 84 includes eight new tax credits or incentives: the Concert and Rehearsal Hall Credit, Video Game Production Credit, Coal Refuse Energy And Reclamation Tax Credit, Waterfront Development Tax Credit, Manufacturing And Investment Tax Credit, and Mixed-Use Development Tax Credit plus a Computer Data Center Equipment Incentive Program. Of these, we believe the following summaries are pertinent to our clients:
Coal refuse energy and reclamation tax credit.
- Effective July 13, 2016,
- Qualified taxpayer, generally an electric generating facility operator, may receive a tax credit equal to $4 multiplied by the tons of qualified coal refuse used to generate electricity at an eligible Pennsylvania facility by a qualified taxpayer in the previous calendar year.
Manufacturing and investment tax credit.
- For each fiscal year beginning after June 30, 2017 a qualified taxpayer may be eligible for a manufacturing tax credit of up to 5% of the taxpayer's increase in annual taxable payroll, if the annual taxable payroll increases in year one by at least $1 million above the base year amount from the creation of new jobs up to the amount specified in the commitment letter.
- A taxpayer may claim the manufacturing tax credit for a period determined by the Department, not to exceed the earlier of: five years from the date the taxpayer receives the manufacturing tax credit certificate; or six years from the start date.
In addition to new incentives, Act 84 re-enacted or modified these existing incentives:
Keystone innovation zones.
- Effective July 13, 2016, Keystone Innovation Zone provisions are repealed and reenacted.
- The new provisions provide a tax credit of up to 50% of the increase in a KIZ zone company's gross revenues attributable to activities in the KIZ,
- A KIZ company must file an application for the credit, which must be accompanied by a certification from the KIZ coordinator that the KIZ company falls within a targeted industry segment identified in the strategic plan adopted by the KIZ partnership.
- The total amount of tax credits approved by the Department of Community and Economic Development may not exceed $15 million for any one taxable year.
Educational Improvement Tax Credit changes & increases in a separate bill - Act 86
- Moves the EITC program from the tax code to the Public School Code
- Increases available EITC credits by $25 million among these sub-programs 1) $15 million for scholarship organizations; $7.5 million for educational improvement organizations; and $2.5 million for prekindergarten scholarship organizations.
Other noteworthy items:
Tax amnesty – authorizes a tax amnesty program for delinquent taxpayers to come forward and enjoy: 1) a limited 5 year look back period; and 2) abatement of half of interest owed
Tobacco Tax – increases tax on cigarettes and subjects e-cigarettes, smokeless tobacco products and roll-your own cigarettes to tax. But not cigars!
Lottery winnings taxable – All lottery winnings will now be subject to PA personal income tax, retroactive to January 1, 2016. Previously winnings from the Pennsylvania Lottery were exempt.
For additional information, please contact Barry D. Groebel, CPA at [email protected].