CCH Tax Day Report
Pennsylvania has enacted legislation amending the corporate income tax return due date and the procedure for filing amended returns. For the personal income tax withholding, refund, and recognition of income provisions are amended. Finally, multiple tax credits are amended and new credits are enacted that are available against the personal and corporate income, capital stock, bank and trust company shares, title insurance shares, insurance premiums, gross receipts and mutual thrifts institutions taxes. Sales and use tax changes (TAXDAY, 2016/07/19, S.28) and property and other tax changes (TAXDAY, 2016/07/19, S.29) made by the legislation are reported separately.
Beginning January 1, 2016, corporate income tax returns are due on or before 30 days after the Federal return is due, or would be due if it was required of the corporation. For reports filed after December 31, 2016, a corporate taxpayer may, within three years after the due date of the original report and extensions, file an amended report to notify the Department of Revenue of a correction to the original report. A taxpayer can file an amended report if a petition raising other issues is pending at the administrative or judicial level. However, a taxpayer is not allowed to file an amended report if, instead of a timely appeal of an assessment, except if a taxpayer would be entitled to an adjustment of the taxpayer’s tax liability; if an administrative appeal board or court has previously addressed an issue; or the taxpayer takes a position that is contrary to law or policy. The filing of an amended report will extend the department’s authority to adjust a taxpayer’s tax liability, including the assessment of additional tax, for the tax year to one year from the date of the filing of the amended report or three years from the filing of the original report, whichever is later.
For personal income tax purposes, effective September 12, 2016, the provisions of section 1033 of the Internal Revenue Code (IRC) regarding nonrecognition of gain from involuntary conversions is adopted. Further, applicable retroactive to January 1, 2014 the definition of intangible drilling and development costs is the same as in IRC §263(c). Beginning in 2016, an account owner taxpayer will be able to make a contribution from their personal income tax refund to a beneficiary’s Tuition Account Guaranteed Savings Program or the Tuition Account Investment Program.
Every person required to deduct and withhold tax must file a withholding tax return at the same time that the person is required to file its annual return of withheld Federal income tax from nonpayroll payments. Further, the definition of lottery income is amended to explicitly exempt “noncash” prizes won from the Pennsylvania state lottery. The Pennsylvania State Lottery or the person paying an annuity for a lottery prize annuity payment must deduct and withhold from the prize payment an amount equal to the amount of the prize payment subject to withholding multiplied by the tax rate in effect at the time the prize payment is made. The amount withheld must be reported on IRS form W-2G, or similar form used for federal reporting purposes.
Applicable retroactive to January 1, 2016, the December 31, 2015 expiration date for the research and development tax credit for Pennsylvania qualified research and development expenses is removed. The credit for new jobs is amended to include a definition for veterans and to expand the credit for hiring veterans. Further, the department may now award the total amount of tax credits authorized for a multiple-year tax credit in the first year in which a new job is created and the tax credit earned. The neighborhood assistance tax credit, available for contributions to a neighborhood organization, is expanded to include affordable housing, and domestic violence or veterans’ housing assistance. The veterans’ housing assistance credit is for up to 75% of the total amount contributed to the neighborhood organization.
Entertainment Production Tax Credit
The name of the Film Production Tax Credit is changed to the Entertainment Production Tax Credit. The term “qualified postproduction expenses” is added to the list production expenses eligible for the credit. A qualified postproduction expense qualifies for a 30% credit. Further, a “qualified postproduction facility” is a permanent facility located in Pennsylvania, approved by the department, employing at least ten full-time employees living in Pennsylvania and that has at least a $500,000 capital investment. Further, the department can now reissue a tax credit that was issued in a previous year beginning after June 30, 2017.
A Concert Rehearsal and Tour Tax Credit is created beginning in fiscal year 2017-2018. The credit may be claimed beginning July 1, 2017 by a concert tour promotion company, concert tour management company or other concert management company. The credit is available against the capital stock, personal and corporate income taxes. Beginning June 30, 2016, definitions are added for concert rehearsal and tour including venue types and sizes, rehearsal and tour requirements. During a tour, a taxpayer must purchase or rent concert tour equipment in an amount of at least $3 million from companies in Pennsylvania, rehearse at a qualified rehearsal facility for at least 10 days, perform at least one concert at a class 1 venue, and perform at one other venue in a different municipality. Qualified rehearsal and tour expenses include all Pennsylvania rehearsal and tour expenses if Pennsylvania rehearsal expenses comprise at least 60% of the total rehearsal expenses. The term does not include more than $2 million in aggregate of compensation paid to individuals for services provided in the tour. The aggregate amount of tax credit in any fiscal year cannot exceed $4 million and a taxpayer cannot be awarded more than $800,000 of tax credit for a tour. For a tour with concerts at two class 1 venues or a class 1 venue and a class 2 venue the credit cannot exceed 25% of the qualified rehearsal and tour expenses. For a taxpayer with concerts at a class 1 venue and a class 3 venue the credit cannot exceed 30% of the qualified rehearsal and tour expenses. For a taxpayer with concerts at a class 1 venue and a class 3 venue which does not serve alcohol the credit may not exceed 35% of the qualified rehearsal and tour expenses. Lastly, a taxpayer is eligible for a 5% credit of the qualified rehearsal and tour expenses if the taxpayer holds concerts at a total of 2 or more class 2 venues or class 3 venues.
A Video Game Production Tax Credit is created beginning in fiscal year 2017-2018 and can be claimed beginning July 1, 2017. The tax credit is available against the personal and corporate income, capital stock, bank and trust company shares, title insurance shares, insurance premiums, and mutual thrifts institutions taxes for qualified video game production expenses. Production expenses include all Pennsylvania expenses comprising at least 60% of the video game’s total production expenses, excluding $1 million in aggregate compensation paid to individuals. The credit can be carried forward for three tax years. The aggregate amount of credits awarded by the department to a taxpayer for a video game may not exceed 25% of the qualified video game production expenses incurred during each of the first four years that the expenses are incurred and 10% for each year thereafter.
Coal Refuse Energy and Reclamation Tax Credit
A Coal Refuse Energy and Reclamation Tax Credit is created for a facility that combusts coal refuse or fuel composed of at least 75% qualified coal refuse, utilizes at a minimum circulating fluidized bed combustion unit equipped with a limestone injection system for control of acid gasses and a fabric filter particulate emission control system, and beneficially uses ash produced by the facility to reclaim mining-affected sites. The tax credit is available against the personal and corporate income, capital stock, bank and trust company shares, title insurance shares, insurance premiums, gross receipts and mutual thrifts institutions taxes. A qualified taxpayer can receive a tax credit equal to $4 multiplied by the tons of qualified coal refuse used to generate electricity at an eligible facility in Pennsylvania. The credit will expire December 31, 2026. The total amount of tax credits issued by the department may not exceed $7,500,000 in fiscal year 2016-2017 and $10,000,000 in each fiscal year thereafter. A single facility cannot receive more than 22.2% of the total tax credits.
Waterfront Development Tax Credit
A Waterfront Development Tax Credit is created to encourage private investment in waterfront property that creates public access to the water, increases property values, restores ecology and catalyzes further financial investment and job creation. The tax credit is available against the personal and corporate income, capital stock, bank and trust company shares, title insurance shares, insurance premiums, and mutual thrifts institutions taxes. To qualify for a tax credit, contributions made to a waterfront development organization must be used by the waterfront development organization for an approved waterfront development project. No tax credit may exceed 75% of the total contribution made by a business firm during a taxable year. The total amount of all tax credits will not exceed $1,500,000 in any one fiscal year.
Manufacturing and Investment Tax Credit
A Manufacturing and Investment Tax Credit is created for taxpayers able to increase taxable payroll in year one by at least $1 million, to maintain the increase for 5 years, and to maintain existing operation in Pennsylvania for 5 years. The tax credit is available against the personal and corporate income, capital stock, bank and trust company shares, title insurance shares, insurance premiums, gross receipts and mutual thrifts institutions taxes. The full-time job must have an average wage at least equal to the county average wage where the job is located and include employer-provided health benefits. The taxpayer must be engaged in the mechanical, physical or chemical transformation of materials, substances or components into new products that are creations of new items of tangible personal property for sale. The taxpayer can be awarded a tax credit of up to 5% of the taxpayer’s increase in annual taxable payroll, if the annual taxable payroll increases in year one by at least $1,000,000 above the base year amount. For each fiscal year beginning after June 30, 2017, $4,000,000 in manufacturing tax credits will be available. As part of the creation of the credit, the Promoting Employment Across Pennsylvania Act is repealed effective December 31, 2016.
Rural Jobs and Investment Tax Credit
A Rural Jobs and Investment Tax Credit is created for capital contributions made by a business firm to a rural growth fund used for investments in a rural business. The tax credit is available against the bank and trust company shares, title insurance shares, insurance premiums and mutual thrifts institutions taxes. No more than $100,000,000 in investment can be approved for credits. Beginning July 1, 2017, a business firm may claim a tax credit of up to 25% of the amount of tax credit certificates for each of the taxable years that includes the third through sixth anniversaries of the closing date of the growth fund.
Keystone Special Development Zone Tax Credit
The Keystone Special Development Zone tax credit is extended to June 30, 2035 (previously 2026). The Keystone Opportunity Zones, Keystone Opportunity Expansion Zones and Keystone Opportunity Improvement Zones provisions are added. The Department of Community and Economic Development may now designate up to 12 additional keystone opportunity zones that will create new jobs. Applicants must have a minimum of 2,500 employees, minimum capital investment of at least $300 million, conduct business operations from one or more facilities on the parcels. Applicants looking to expand a zone must create at least 350 new jobs or make a capital investment of at least $35,000.
Effective September 12, 2016, a Mixed-Use Development Tax Credit is created to increase affordable housing and commercial corridor development opportunities. The tax credit is available against the personal and corporate income, capital stock, bank and trust company shares, title insurance shares, insurance premiums, gross receipts and mutual thrifts institutions taxes. Amounts made available to qualified taxpayers to offset against qualified tax liability as authorized and allocated under this article, as evidenced by tax credit certificates and meeting all of the criteria set forth in this article. Up to $2,000,000 in each fiscal year will be available for mixed-use development tax credits. Beginning July 1, 2017, qualified taxpayers can receive a tax credit certificate upon receipt of payment of capital. If a qualified taxpayer cannot use the entire amount of the tax credit for the taxable year in which the tax credit is first approved, the excess credit may be carried over to subsequent taxable years and used as a credit against the qualified tax liability of the qualified taxpayer for those taxable years.
Finally, the existing Keystone Innovation Zone statute is repealed and replaced by the Keystone Innovation Zone (KIZ) Tax Credit that allows a company to claim a tax credit equal to 50% of the increase in the KIZ company’s gross revenues in the immediately preceding taxable year. The increase must be attributable to activities in the KIZ over the KIZ company’s gross revenues in the second preceding taxable year attributable to its activities in the KIZ. A tax credit for a KIZ company will not exceed $100,000 annually. The tax credit is available against the personal and corporate income, capital stock, bank and trust company shares, title insurance shares, insurance premiums, and mutual thrifts institutions taxes. The total amount of tax credits approved by the department will not exceed $15,000,000 for any one taxable year.
Act No. 84 (H.B. 1198), Laws 2016, effective July 13, 2016, or as noted and applicable as noted