Pennsylvania Governor Tom Wolf Signs Tax Budget Bill

On October 30, 2017, Pennsylvania Governor Tom Wolf signed into law House Bill 542, a $1.6 billion revenue bill aimed at addressing the state’s $2.3 billion budget deficit. Most of the anticipated revenue for this bill comes from borrowing against future revenues due the state from the 1998 National Tobacco settlement.

Highlights of the House bill include:

• Removing the $5 million cap on net operating loss (NOL) deductions and increasing the percentage cap (currently 30% of taxable income) to 35% in 2018 and 40% in 2019 and thereafter.
• By March 1, 2018, requiring remote sellers, marketplace facilitators, and referrers (Amazon, eBay, etc.) with aggregate Pennsylvania sales of $10,000 or more in the previous calendar year to elect either to: (1) collect and remit the sales tax; or (2) comply with new Pennsylvania notice and reporting rules. This is similar to provisions adopted earlier this year in Massachusetts, Minnesota, Rhode Island, and Washington.
• Excluding separately invoiced help desk and call center support services from the sales tax by expanding the definition of “tangible personal property,” effective immediately.
• Shortening the time a taxpayer has to file a petition with the Board of Finance Revenue (BFR) to appeal a Board of Appeals (BOA) decision from 90 days to 60 days. This provision becomes effective December 29, 2017, and is estimated to generate additional revenues of $20 million annually for the state.

In addition, House Bill 542 does the following:

• Expands the sales and use tax exemption for wrapping supplies to now include beer kegs.
• Extends the application date for additional Keystone Opportunity Zones that are currently available from October 2016 to October 2018.
• Requires entities paying nonresidents more than $5,000 in rent and royalties on Pennsylvania property to withhold personal income tax on those payments.
• Requires companies that bring out-of-state independent contractors into Pennsylvania for work and pay them more than $5,000 to withhold Pennsylvania personal income tax on that compensation.
• Modifies the Manufacturing Innovation and Reinvestment deduction.

While House Bill 542 will create additional revenues for the Commonwealth, Pennsylvania had to borrow $1.5 billion against future revenues in order to balance the state’s budget, so taxpayers should expect additional changes in 2018 and beyond.

Please contact your Marcum State and Local Tax advisor should you have any questions related to this new legislation.