On June 16, the Department of Revenue released draft guidance on applying Pennsylvania’s new market-based, sales factor sourcing legislation that was signed into law in July 2013.* The new market-sourcing legislation is effective for tax years beginning on or after January 1, 2014. Because Pennsylvania’s apportionment formula is now based entirely on the sales factor, understanding the recent changes to the sourcing rules is essential.
The new market-sourcing rules apply to receipts from: (i) services; (ii) sales, leases and rentals of real property; and (iii) rentals, leases and licenses of tangible personal property. The Department’s draft guidelines further explain the new rules for sourcing services and provide several examples applying these rules to specific services and specific industries. The draft also includes some guidance on the Department’s interpretation of the “cost of performance” sourcing rule, which continues to apply to receipts from intangibles.
Click here for the Department’s June 16 draft guidance. The Department is currently accepting comments.
If you have questions or would like more information on how the market-based sourcing rules apply to your business, please contact one of the authors or the Reed Smith State Tax attorney with whom you usually work.
* See our July 2013 Pennsylvania Update for a more in-depth discussion of that legislation.
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Reed Smith’s state and local tax practice is comprised of more than 30 lawyers across seven offices nationwide. The practice focuses on state and local audit defense and refund appeals (from the administrative level through the appellate courts), as well as planning and transactional matters involving income, franchise, unclaimed property, sales and use, and property tax issues.
Client Alert 2014-177