Pennsylvania — Local Business Privilege Tax ... - Schneider Downs

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					                                                                                                                   State and Local Tax


                                                                                                                                Summer 2009

        ASSURAncE & TAx ADvISoRS   n   BUSInESS ADvISoRS   n   coRPoRATE FInAncE ADvISoRS      n   TEchnoLogy ADvISoRS      n   WEALTh MAnAgEMEnT ADvISoRS

                                                       FEATURE SToRy
                                                       Pennsylvania — Local Business Privilege Tax
Pennsylvania — Local Earned Income Tax
                                                       The Pennsylvania Commonwealth                                  tax to revenues generated within a taxing
Pennsylvania Act 32 of 2008 changed the
                                                       Court (Court) recently ruled in the case                       jurisdiction’s boundaries.
way earned income is calculated. Beginning
                                                       of A&L, Inc. v. Township of Rostraver
January 1, 2009, taxpayers that have a loss
                                                       and Belle Vernon Area School District,                         The Court then directed their attention to
resulting from unincorporated business
                                                       regarding the assessment of business                           the application of the office exception. The
income may no longer deduct the loss from
                                                       privilege tax. In this case, A&L, Inc.                         Court determined that the office exception
earned income they receive as an employee.
                                                       (A&L) is a construction company with                           in Township Ordinance 112, § II (f )(5) and
This change should be taken into account
                                                       its headquarters in Belle Vernon, an                           District Business Privilege Resolution § II
when calculating quarterly estimated tax
                                                       additional office in McKeesport and other                      (f )(5) is an exemption and not an exclusion;
                                                       locations throughout Pennsylvania. One                         therefore, the burden of proof rested upon
                                                       of the main issues of the case was whether                     A&L to demonstrate that they were entitled
ohio — Sales Tax vendor compensation
                                                       or not A&L was entitled to the office                          to the exemption and that their other
                                                       exception in Township Ordinance 112, §                         Pennsylvania locations qualify as “an office
On July 1, 2009, the Ohio Department of
                                                       II (f )(5) and District Business Privilege                     or place of business regularly maintained by
Taxation issued Sales and Use Tax Information
                                                       Tax Resolution § II (f )(5) regarding                          the taxpayer.” A&L submitted the testimony
Release ST 2009-01 regarding vendor
                                                       gross receipts attributable to its other                       of their former CFO regarding the activities
compensation. The information release was
                                                       Pennsylvania locations.                                        that took place at the other A&L locations.
in response to recent legislation requiring in-
                                                                                                                      In addition, A&L submitted additional
state vendors who, due to prior law, switched
                                                       A&L first argued that the trial court                          documents that the Court ruled to be very
from origin-based sourcing to destination-
                                                       improperly relied upon the Pennsylvania                        general in nature and did not to correspond
based sourcing and are now required to
                                                       Supreme Court decision Gilberti v. City                        with one another. As a result, the Court
convert back to origin-based sourcing by
                                                       of Pittsburgh, 511 Pa. 100, 511 A.2d 1321                      ruled that A&L did not meet its burden
January 1, 2010.
                                                       (1986) (Gilberti) and failed to consider                       of proof for the locations to qualify for the
                                                       the more recent Pennsylvania Supreme                           office exemption.
Vendors required to convert back to origin-
                                                       Court ruling in V.L. Rendina, Inc. v. City
based sourcing for sales tax may be eligible
                                                       of Harrisburg, 595 Pa. 407, 938 A.2d 988                       Contractors and other businesses with
for compensation to reduce some of the cost
                                                       (2007) (Rendina). The Court disagreed                          multiple temporary locations should be
of compliance. To qualify, the retailer must
                                                       with A&L stating that the Supreme Court                        aware of the significance of the Pennsylvania
have received temporary compensation for
                                                       noted that the two cases address separate                      Supreme Court’s rulings in Gilberti and
the original switch from origin-based to
                                                       issues. Gilberti addresses the issue of when                   Rendina and the standards applicable to
destination-based sourcing under section
                                                       a business privilege tax may be applicable                     applying the office exemption often found in
5739.123 of the Revised Code.            The
                                                       to revenues generated outside the taxing                       local ordinances and resolutions similar to
compensation will be a one-time payment
                                                       jurisdiction, while Rendina addresses                          those of Township Ordinance 112, § II (f )
equal to the actual cost the vendor incurred
                                                       the application of the business privilege                      (5).
capped at $1,000 for vendors who were
required to by law to convert to destination-
                                                           Disclaimer: The information presented is general information and is not intended to be relied upon without
based sourcing and $600 for vendors who                    consulting a tax professional regarding your specific facts and circumstances. This advice is not intended or
                                                           written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be
                                        continued          imposed, or for promoting, marketing or recommending to another person, any tax-related matter.
                                                                InSIghTS                     TAx UPDATES FRoM SchnEIDER DoWnS                         Summer 2009


continued from page 1
                                                        Ohio Commercial Activity continued
                                                        The requirements for the CAT voluntary disclosure agreement are similar to other disclosure
                                                        agreements; the taxpayer must register, file all applicable returns and pay all taxes and related
 elected to convert to destination-based sourcing       interest. In exchange, the Tax Commissioner agrees to waive all associated penalties due related
 prior to April 18, 2008.                               to registration, filing of returns and remittance of tax. It should be noted that as is common
                                                        with most VDAs, the Department reserves the right to audit the returns for the period covered
 Compensation can be applied for by filing an           by the agreement. Additional information can be found on the Ohio Department of Taxation’s
 Application for Compensation of Expenses               web site at
 Incurred for Origin Based Sourcing Tax
 Collections (form ST-AR-OBS) with the Ohio
 Department of Taxation.                                                           TAx AMnESTy PRogRAMS
 ohio — commercial Activity Tax (cAT) voluntary         Update: Maryland – In May, Maryland                          July 1, 2001 to January 1, 2009, with some
 Disclosure Program                                     Governor Martin O’Malley signed the                          specific exceptions.
                                                        proposed bill authorizing the tax amnesty
 The Ohio Department of Taxation                        program for the period of September 1                        The program provides a two-month
 (Department) recently issued an information                                                                         opportunity for taxpayers to settle account
                                                        through October 30, 2009. Taxpayers who
 release revising the Department’s policy towards
                                                        failed to file returns or pay corporate income,              balances, overdue audit assessments, and
 voluntary disclosure agreements (VDA) for
 the Commercial Activity Tax (CAT). Since               withholding, personal income, sales and use,                 certain tax disputes with no penalties and
 the CAT has only been in existence since               or admission and amusement taxes may apply                   only one-half of the interest. Taxpayers must
 2005, the Department did not previously have           within the amnesty period and have penalties                 file an amnesty application and any applicable
 an established voluntary disclosure program.           and one-half of the interest waived. The                     returns; pay any taxes, collection fees and
 Under the current policy guidelines, taxpayers         program is not applicable to taxpayers who                   billed notices or demands issued by the
 who are interested in becoming compliant with          have more than 500 U.S. employees, who                       Department of Revenue; and remit 50% of
 their CAT obligations may enter into a VDA             took part in the 2001 amnesty program, or                    the accrued interest charges.
 by contacting the Department in writing and            who were eligible to participate in the 2004
 providing the following information:                                                                                vermont has instituted a tax amnesty
                                                        Delaware holding company settlement period.
                                                                                                                     program that will run from July 20 through
 • A description of taxpayer’s activities in Ohio;
 • How long such activities have been performed         Louisiana has announced a tax amnesty                        August 31, 2009. Similar to other amnesty
   by the taxpayer in Ohio;                             program that will run from September 1                       programs, the Vermont Department of
 • A brief description regarding the source             through October 31, 2009. The Louisiana                      Taxes will forgive penalties when outstanding
   of taxable gross receipts and whether such           program is open to all taxpayers except those                tax and related interest are paid in full. The
   amounts will be greater than one million             who are under criminal investigation or for                  program applies to most Vermont taxes that
   dollars;                                             periods for which a civil fraud penalty has                  were due on or before January 26, 2009. In
 • The taxpayer’s type of organization;                 been asserted. The amnesty program applies                   addition to applying to unfiled tax returns,
 • Description of the taxpayer's organizational         to all taxes administered by the Louisiana                   amnesty will apply to late payment of taxes for
   structure including ownership percentages; and                                                                    which a proper return was filed, but the taxes
                                                        Department of Revenue, except for motor
 • Any additional pertinent information.
                                                        fuel taxes that were due during the period of                not paid; to assessments; and to installment
                                            continued                                                                plans if all taxes and interest are paid during
                                                                                                                     the amnesty period.
For more information about any of these tax issues,
Pittsburgh:                                                                                          Insight      is information filtered through experience. Schneider Downs’
Timothy Adams, (412) 697-5250                                                                           interdisciplinary teams understand the complex issues businesses face.                                                                                Using the latest technology and in-depth resources, we help you make
Jennifer Koehler, (412) 697-5244                                                                         the most of your opportunities. Innovation occurs when creative                                                                              ideas are tempered by study and vision. Clients trust Schneider Downs
Jack Stewart, (412) 697-5443                                                                             to stay current with new regulations and changing economic conditions.                                                                              We aggressively seek a range of integrated, innovative solutions to each
Columbus:                                                                                               business situation. Experience results from applying lessons learned to
Frank Dantonio, (614) 586-7218                                                                       new situations. Our shareholders have directed corporations, owned small                                                                      businesses and managed nonprofits. They can understand your business and
                                                                                               offer flexible paths to success.

             Call 412.697.5200                                                         To receive tax updates electronically, please email

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