Pennsylvania State and Local Tax Updates to be Aware Of

February 17, 2015

Pennsylvania State and Local Tax Updates to be Aware Of

All taxpayers who received more than $33 in total gross taxable income in the calendar year 2014 must file Pennsylvania personal income tax returns by midnight, Wednesday, April 15 (disregarding extensions).

Tax Increase Prevention Act of 2014
The federal government’s enactment of the Tax Increase Prevention Act of 2014, which offers a first-year 50 percent bonus depreciation deduction at the federal level on qualifying new property acquired and placed in service in 2014, does not change the Pennsylvania corporate net income tax treatment of bonus depreciation established by Act 89 of 2002. What does this mean?

  • For Pennsylvania purposes, taxpayers must add back into Pennsylvania-taxable income any 50 percent bonus depreciation deduction claimed federally and allowable under Section 168(k) of the Internal Revenue Code.
  • An additional depreciation deduction is then calculated by multiplying the amount of the depreciation deduction allowable under IRC Section 167 by three-sevenths.
  • To recover the full 50 percent bonus depreciation, taxpayers will be allowed to deduct any remaining unrecovered amount in the last taxable year that the property is depreciated.

Educational Improvement Tax Credit and Education Opportunity Scholarship Tax Credit: Effective October 31, 2014

Educational Improvement Tax Credit (EITC) - The Educational Improvement Tax Credit (EITC) program provides tax credits to eligible businesses contributing to scholarship organizations (including pre-kindergarten scholarship organizations) and educational improvement organizations, in order to promote expanded educational opportunities for students in Pennsylvania.

Education Opportunity Scholarship Tax Credit (EOSTC) - The Education Opportunity Scholarship Tax Credit (EOSTC) program provides tax credits to eligible businesses contributing to an Opportunity Scholarship Organization. Business contributions are then used by Opportunity Scholarship Organizations to provide tuition assistance in the form of scholarships to eligible students residing within the boundaries of a low-achieving school to attend another public school outside of their district or nonpublic school. A low-achieving school is defined as a public elementary or secondary school ranking in the bottom 15 percent of their designation as an elementary or secondary school based upon combined math and reading Pennsylvania System of School Assessment (PSSA) scores.

Effective October 31, 2014, The EITC and EOSTC Programs are now combined programs, which allows businesses to apply for an alternate tax credit if the preferred credit is not available. This also allows the Department of Community and Economic Development (DCED) to transfer unused credits from one program year to another after January 1 each fiscal year. Some of the key highlights are covered below:

  • Career and technical schools now qualify to receive funding from the EITC Program.
  • Allows for credits to be distributed through more than one level of pass-through entities.
  • Awarded credits may now be applied to the income tax of a spouse filing a joint tax return or towards corporate net income tax, capital stock & foreign franchise tax, bank shares tax, title insurance company shares tax, insurance premiums tax, mutual thrift institutions tax, and malt beverage tax.

Property Tax/Rent Rebate Program
The rebate program benefits eligible Pennsylvanians age 65 and older; widows and widowers age 50 and older; and people with disabilities age 18 and older. The income limit is $35,000 a year for homeowners and $15,000 annually for renters, and half of Social Security income is excluded. The maximum standard rebate is $650, but supplemental rebates for qualifying homeowners can boost rebates to $975.

Homeowners receive:
Income     Maximum Rebate
$0.00 to $8,000.00 $650.00
$8,001.00 to $15,000.00 $500.00
$15,001.00 to $18,000.00 $300.00
$18,001.00 to $35,000.00 $250.00
Renters receive:
Income     Maximum Rebate
$0.00 to $8,000.00 $650.00
$8,001.00 to $15,000.00 $500.00

Philadelphia Distressed Business Credit: Effective starting in tax year 2015
There is a new credit against business income and receipts tax for distressed businesses. A “distressed business” is defined as a business located within 100 feet of a public works project that has substantially obstructed customer access to that business, or substantially obscured the existence of the business, for at least 30 days; resulting in a loss of net income equal to at least 10% of total net income, and a loss of sales receipts equal to at least 10% of total sales receipts, for the tax year in which the obstruction occurred. The amount of the credit is equal to 20% of the amount of lost sales/receipts for the year in which the obstruction occurred, up to a maximum of $20,000, but not to exceed the after tax loss in net income. Unused credit may not be carried forward.

Other Pennsylvania Updates
The Department of Revenue has established a sales/use tax desk review practice within the Pass-Through Business Office as an economical way for the department to review filing liabilities for sales/use tax non-filers and under-reporters. Key highlights for this program are noted below:

  • As part of this new program, the Pass-Through Business Office will review business tax filings to explore instances where sales tax is due on taxable purchases (business equipment purchased online or from out-of-state, for example), but may not have been paid. In cases where the sales tax has not been paid, the department will assess a use tax liability.
  • These reviews may be conducted in tandem with Pass-Through Business Office personal income tax reviews, but this review process is separate from department field audits.
  • Taxpayers who fail to respond to department inquiries will be referred for further enforcement, which could include audits and/or direct assessments.

For any questions regarding this article please contact James H. Nehr at Article research compiled by Michael Desiante.