Pennsylvania ~ Multiple Taxes: Cigarette Tax Increased; Tobacco Tax Imposed; Amnesty Program Enacted; Other Changes Made

CCH Tax Day Report

Pennsylvania has enacted a cigarette tax increase, a new tax on tobacco products, and a tax amnesty program for fiscal year 2016-2017. Other changes relate to an increase in the bank and trust company tax, an additional tax on table games, amendments to the realty transfer tax, and new neighborhood improvement zone real property assessment restrictions.

Changes in the same enacted law concerning sales and use tax (TAXDAY, 2016/07/19, S.28) and corporate and personal income tax (TAXDAY, 2016/07/19, S.27) are reported separately.

Cigarette Taxes

Effective August 1, 2016, the tax on each cigarette sold or possessed in the state will increase from $0.08 to $0.13. In addition, a floor tax of $0.05 per cigarette in the possession of a person must be paid by October 29, 2016. Further, a cigarette stamping agent’s commission is reduced from 0.87% to 0.586%.

An expiration date relating to municipal cigarette taxes is repealed.

Tobacco Products Tax

Generally effective October 1, 2016, the state will impose a tax on tobacco products other than cigarettes. The definition of “tobacco products” includes electronic cigarettes. The term tobacco products does not include either cigars or any item taxed pursuant to the cigarette tax law.

The tax is imposed on the dealer or manufacturer at the time the tobacco product is first sold to a retailer in the state. The general rate of tax is $0.55 per ounce for the purchase of any tobacco product other than electronic cigarettes. The tax must be collected from the retailer by whomever sells the tobacco product to the retailer and remitted to the department.

An “electronic cigarette” is an electronic oral device that provides a vapor of nicotine or any other substance and the use of inhalation that simulates smoking whether the device is sold as an e-cigarette, e-cigar, e-pipe, or any other product, name or description. The definition also includes a liquid or substance placed in or sold for use in an electronic cigarette. The rate of tax on electronic cigarettes is 40% of the purchase price charged to the retailer. The tax must be collected from the retailer by whomever sells the electronic cigarette to the retailer and remitted to the department.

A floor tax is due on tobacco products in the possession of a retailer on the effective date of the tax.

Some of the terms of the new tax relating to roll-your-own tobacco requires (1) amendments that affect the Master Settlement Agreement and (2) the consent of participating manufacturers. Those provisions will take effect 60 days after the Office of Attorney General publishes the notice of the consents.

Tax Amnesty

For fiscal year 2016-2017, Pennsylvania will conduct a tax amnesty program. The amnesty will be conducted over a period of 60 consecutive days ending no later than June 30, 2017. The amnesty will apply to any tax administered by the Department of Revenue (DOR) (eligible taxes) as of December 31, 2015. An “eligible tax” also will include any interest, penalty, or fee on an eligible tax. For purposes of the International Fuel Tax Agreement (IFTA), the program will apply only to taxes, interest, and penalties owed to the Commonwealth.

Generally, the program will apply to a taxpayer who is delinquent on payment of a liability for an eligible tax as of December 31, 2015. The delinquency can include, among other things, liabilities not reported, underreported, or not established. A taxpayer who participates in the program will not be eligible to participate in a future tax amnesty program. Taxpayers participating in deferred payment plan agreements with the DOR are eligible for the program.

During the amnesty period, participants will be required to:

– file a tax amnesty return;

– pay all taxes and half of the interest due to the state (no payment of penalties would be required); and

– file complete tax returns or, for previous underreporting, amended tax returns for all required years for which the taxpayer previously has not filed.

Generally, the DOR may not collect any penalties or interest waived during the program period unless the taxpayer who is granted amnesty, within two years after the end of the program:

– becomes delinquent in payments for three consecutive periods without contesting the assessments; or

– becomes delinquent in payments and is eight or more months late in payment of taxes due.

Bank and Trust Company Act

Beginning January 1, 2017, the bank and trust company tax rate will be increased to 0.95% of each dollar of taxable amount. Currently, the rate is 0.89%. In addition, terms are added concerning ascertainment of taxable amounts and where institutions filing reports of condition on a consolidated basis with certain subsidiaries for calendar years 2018-2022.

Retroactive to January 1, 2014, in computing the deduction for certain U.S. obligations, a taxpayer must subtract goodwill recorded as a result of the use of purchase accounting for specific acquisitions or combinations. Formerly, the taxpayer had the option of making the deduction. Also there are amendments to the apportionment of an institution’s taxable amount of shares.

Applicable to tax years beginning after December 31, 2016, the definition of “doing business in this Commonwealth” has been amended by removing a requirement that an institution must generate gross receipts apportioned to the Commonwealth in excess of $100,000. In addition, the definition of “receipts” has been replaced with the following:

The total of all items of income reported on the income statement of the institution’s Reports of Condition at the end of the preceding calendar year. If the institution does not file quarterly Reports of Condition, the term shall include all items of income included on an income statement determined in accordance with generally accepted accounting principles for the preceding calendar year.

Table Game Tax

In addition to other table game taxes, a new table game tax is imposed on certificate holders, each of whom must pay an additional 2% of its daily gross revenue. This tax will expire June 30, 2019.

Realty Transfer Tax

Applicable to real estate transfers on or after September 11, 2016, definitions relating to the realty transfer tax have been added for “conservancy” and “veterans’ organization.” Veterans’ organizations have been added as exempt parties in a section previously relating only to governmental bodies. Terms for conservancy exemptions were amended to conform to the new definition and new provisions for transactions involving conservancies and certain other parties were added. Finally, an exemption was added for transfers to or by a land bank.

Neighborhood Improvement Zone Real Property Tax Restrictions

Real estate taxes may not be assessed on any property in a neighborhood improvement zone owned by a contracting authority. Further, for purposes of determining the assessed value of property located in a neighborhood improvement zone, the actual fair market value of the property must be established without utilizing or considering the cost approach to valuation, and any funds received by the contracting authority and utilized directly or indirectly in connection with the property shall not be considered real property or income attributable to the property.

Act No. 84 (H.B. 1198), Laws 2016, effective July 13, 2016, or as noted and applicable as noted

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