Most people are at least vaguely aware of the negotiations happening on the Build Back Better reconciliation bill at the federal level. I doubt that most can say the same for proposed Pennsylvania tax bills. But don’t worry – we’ve done the work, so you don’t have to! Here are a few of the recent bills and guidance happening in the state:
Enacting a PTE Tax: House Bill 1709
In a previous article, we discussed a number of states that have been enacting pass through entity (PTE) taxes in response to IRS Notice 2020-75. The general idea is that individuals may choose to pay a PTE tax on business income instead of paying personal income tax at the state level. By doing this, individuals avoid the $10,000 SALT cap put in place by the Tax Cuts and Jobs act, as the PTE tax is deductible at the entity level. This House Bill proposes a PTE tax for Pennsylvania. This bill has not been brought to a vote but may be one to watch considering so many other states have passed similar legislation this year.
State Section 179 Expensing Limitation – Senate Bill 349
This legislation, which was passed by the Senate on October 27, brings the state limitation on section 179 deductions, currently limited to $25,000, in line with the Federal Internal Revenue Code of 1986. For most businesses this would allow a 100% deduction for eligible property purchased.
State Net Operating Loss Limitation
Several years ago, the Nextel case resulted in Pennsylvania businesses being required to limit their net operating loss deductions to a percentage of income, where prior to that most small businesses could eliminate their tax bill by utilizing prior losses. House Bill 1960 and Senate Bill 348 aim to increase the losses that Pennsylvania businesses would be allowed to take.
Like-Kind Exchanges – Senate Bill 347
This legislation, relating to like-kind exchanges, would mirror Pennsylvania law to federal, removing a disadvantage that Pennsylvania small businesses face when competing with those in other states. Pennsylvania businesses would be allowed a tax deferral when property is exchanged for similar property. This is the third time this legislation has been proposed.
Remote Help Supply Services–Sales and Use Tax Bulletin 2021-03
This bulletin clarifies the applicability of Pennsylvania tax on help supply services when the help being provided may be working remotely. Specifically, Pennsylvania tax is due when the benefit of the services occurs in Pennsylvania. If an employee is working remotely from Pennsylvania providing services to a company located in another state, PA sales tax is not due. On the other side, help supply being provided by an employee working remotely from another state is subject to Pennsylvania tax if the benefit of services is received in Pennsylvania.
Limited Carryforward of Education Tax Credits – Restricted Tax Credit Bulletin 2021-01
For 2020 and 2021, educational tax credits including the Educational Improvement Tax Credit (EITC) and Opportunity Scholarship Tax Credit (OSTC), may be carried forward by the entity granted the credits. It is important to note that any credits allocated to owners may not be carried forward, so individuals should plan accordingly when electing to allocate credits.