New corporate tax will benefit state coffers
For years, many states have been collecting corporate income taxes from companies that do not have offices, employees or property in them.
Pennsylvania finally will be doing the same, beginning Jan. 1, thanks to the lifting of constraints imposed by courts of this commonwealth on how the state applies the tax in question.
The U.S. Supreme Court’s 5-4 opinion in South Dakota v. Wayfair last year removed the Pennsylvania constraints that presumably, over the years, deprived the commonwealth’s coffers of huge sums.
According to an Associated Press report published in the Oct. 21 Mirror, the change that goes into effect at the start of 2020 apparently will apply to services sold, since federal law prohibits state corporate income taxes on “tangible personal property,” such as office equipment, furniture or clothing.
The AP report says the expanded coverage of the Pennsylvania corporate income tax due to last year’s federal high court opinion will apply to non-Pennsylvania companies doing more than $500,000 worth of business in this state.
From the standpoint of the Keystone State treasury, it would have been better if Harrisburg had mimicked Hawaii’s July decision setting a $100,000 threshold for the taxation in question.
Such a decision would have been fairer from the standpoint of Pennsylvania’s businesses, which compete against those companies without an actual physical presence here.
For Pennsylvania, over the years, the corporate income tax was not collected because this state’s courts did not interpret federal high court decisions prior to South Dakota v. Wayfair as limited to sales taxes, as courts in many other states had done. As a result, those other states applied their corporate income tax rates to companies without a physical presence while the Keystone State, unfortunately, gave such companies a bye.
Due to South Dakota v. Wayfair, Pennsylvania’s reluctance toward extending the corporate income tax to non-Pennsylvania companies now has disintegrated. Meanwhile, South Dakota v. Wayfair also opened the way for states to require out-of-state online sellers to collect state sales taxes from customers and forward that money to them.
As of July 1, Act 13 of 2019 began requiring non-Pennsylvania companies with sales above $100,000 in the commonwealth to collect and remit sales tax revenue to Pennsylvania’s coffers.
Jeffrey A. Johnson, communications director for the Pennsylvania Department of Revenue, said during a phone call Tuesday that the Use Tax line on Pennsylvania state income tax form PA-40 would remain for taxpayers who make purchases from non-Pennsylvania companies doing less than $100,000 in annual sales in the commonwealth.
On the 2018 PA-40, that tax form line was Line 25. In 2018, without having access to the new revenue sources for which South Dakota v. Wayfair has cleared the way, Pennsylvania collected $3.4 billion in net corporate income tax and $25 billion in sales and personal income taxes. There reportedly have been no projections regarding how much money to expect from the two new revenue sources.
Suffice to say that, whatever amount ultimately is collected will be of great importance over the short and long terms, since the state’s retirement-age population is expected to continue growing while the working-age population is projected to shrink.
For now, then, what is most important is that the Keystone State is positioned to receive the additional tax revenue, making the always-challenging annual state budget-preparation exercise at least a little less daunting.