Pennsylvania tax legislation signed Governor Tom Wolf will:
- amend the corporate income tax net operating loss deduction;
- create a Manufacturing Innovation and Reinvestment Deduction;
- amend the film production tax credit districts; and
- require that before a tax credit can be awarded the Department of Revenue can make a finding that the taxpayer has filed all tax returns and paid all balances due.
In addition, the legislation makes changes regarding personal income tax withholding, deductions and refund checkoffs. Sales and use tax changes are reported separately.
Specifically, the NOL deduction is amended by:
- removing the $5 million hard NOL cap; and
- increasing the percentage cap to 35% in 2018 and 40% in 2019 and after.
The change takes effect after the Department of Revenue publishes a notification that all or a part of the net loss deduction has been deemed unconstitutional as a result of a decision by the Pennsylvania Supreme Court. Notably, the court issued a decision finding part of the NOL deduction unconstitutional earlier this month.
Manufacturing Innovation and Reinvestment Deduction
In addition, taxpayers may qualify for the new Manufacturing Innovation and Reinvestment Deduction. To qualify, taxpayers must make a capital investment that meet several requirements. The investment must be:
- in excess of $100 million;
- for the creation of new or refurbished manufacturing capacity; and
- made within three years of a designated start date.
The project must be completed within five years.
The Department of Community and Economic Development will determine the maximum deduction for the taxpayer. The deduction must be:
- equal to 5% of the private capital investment utilized; and
- may be taken each year for the five tax years.
The legislation sets limits on use of the Manufacturing Innovation and Reinvestment Deduction:
- The deduction is nontransferable.
- The taxpayer cannot reduce its liability by more than 50%.
- Any unused portion of the deduction expire at the end of the corresponding tax year.
Film Production Tax Credit
The Film Production Tax Credit is amended so that the Department of Revenue can designate up to two tax credit districts for the purpose of enhancing, promoting and expanding film production. The tax credit districts must:
- be located on deteriorated property; and
- contain at least one qualified production facility and six soundstages.
The property must be occupied by two or more qualified businesses that make a total capital investment of at least $400 million within five years after the designation of the district. Tax credits may be authorized in fiscal year 2019-20 and thereafter.
Keystone Opportunity Zones
Finally, the legislation extends the application date for additional Keystone Opportunity Zones that are currently allowed in law from October 2016 to October 2018.
Personal Income Tax Changes
Personal income tax changes include:
- amending the Pennsylvania ABLE (Achieving a Better Life Experience) Act to allow a deduction for contributions to an ABLE account and exempting undistributed earnings in the ABLE account as well as distributions from the ABLE account;
- making the Wild Resource Conservation Fund, Organ and Tissue Donation Awareness Fund, Military and Family Relief Assistance Fund, Children’s Trust Fund, and American Red Cross checkoffs permanent;
- requiring withholding of Pennsylvania income tax by the Pennsylvania State Lottery or the person making the lottery prize payment if Federal income tax is withheld;
- entities making rent and royalty payments on Pennsylvania property to nonresident over $5,000 must withhold personal income tax on those payments;
- companies that bring out-of-state independent contractors into Pennsylvania for work in excess of $5,000 must withhold personal income tax; and
- businesses are required to electronically file 1099-MISC forms for all employess and all classes of Pennsylvania source income.
Act 43 (HB 542) Laws 2017, effective December 29, 2017 and as noted