The Governor of Pennsylvania signed HB 1342 to enact changes to the state’s corporate income tax.[1] The legislation amends corporate income tax in three ways: (1) adopts a clear economic nexus standard; (2) adopts market sourcing for revenue from intangible assets; and (3) reduce the corporate tax rate and continue to reduce the rate gradually over the next eight years.
Economic link: The law provides a “clear” economic connection threshold of $500,000 for corporate income tax purposes. Specifically, the legislation provides a rebuttable presumption that taxpayers with sales of $500,000 or more from Pennsylvania in the current tax year have a substantial connection to the state for that tax year. taxation.
Supply of receipts: The act updates the state’s Corporate Income Tax Procurement Act to adopt market procurement by eliminating the cost of performance procurement rules for revenue from Intangible assets. The legislature previously amended the Corporation Income Tax Procurement Act (effective for tax years beginning on or after January 1, 2014) to adopt a market procurement method for sales Services (that’s to say, supply depending on where the customer receives the service). The law conforms the procurement provisions for revenue from intangible assets to the source of that revenue using a market approach.
Tax rate: The law reduces the rate of corporation tax and provides for a continuous progressive reduction over the next eight years. The Pennsylvania corporate income tax rate of 9.99% for taxation years before the effective date of the law is reduced to 8.99% for taxation years commencing on or after January 1, 2023. The tax rate decreases by 0.5% per year each year until 2031 until the rate reaches 4.99%.
[1] HB 1342, General Assembly 2021-2022, Reg. Sess. (Pa. 2022).
Link to the legislation here.
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