On July 13, 2016, Governor Wolf signed into law Act 84 of 2016 (HB 1198) (Act 84), which includes various tax law changes. Most notably, Act 84 changes the due date for filing corporate net income tax (CNIT) returns and modifies provisions relating to the filing of amended CNIT returns; imposes sales and use tax on digital goods, including streamed and temporarily accessed digital goods; limits the sales tax vendor discount for timely filing returns, and changes the rate of and the manner in which the Bank Shares Tax is calculated. These changes have various effective dates.

Act 84's major provisions are described below.

CNIT

Act 84 extends the deadline to file the Pennsylvania corporate tax report to May 15. This change was necessary to take into account the change to the federal corporate income tax filing deadline to April 15 starting in 2016.

Act 84 also modifies the process for filing an amended CNIT report after December 31, 2016, for tax years after December 31, 2015. An amended report may be filed within three years after filing the original report, including extensions, and may be filed even if a petition raising other issues is pending in an administrative or judicial appeal. Significantly, Act 84 now requires the Department of Revenue (Department) to review the amended report and notify the taxpayer in writing of its decision whether to accept the amended report within 12 months of filing such report. Importantly, if the Department fails to act on an amended return within 12 months, the amended report will be deemed to have been accepted by the Department. If the taxpayer disagrees with the Department's action on its amended report, the taxpayer may file a Petition for Review with the Board of Appeals. This Petition is due 90 days from the mailing date of the Department's notice. This modified amended return process is intended to eliminate the existing trap for the unwary (which particularly affected out-of-state taxpayers), that: a) neither required the Department to act on nor to notify the taxpayer of its inaction on an amended return; and b) required the filing of a Petition for Refund with the Board of Appeals to preserve appeal rights.

Sales and use tax

Effective August 1, 2016, Act 84 imposes sales and use tax on streamed and electronically delivered digital goods. Specifically, Act 84 expands the definition of taxable tangible personal property to include videos, photographs, books, any otherwise taxable printed matter, applications (apps), games, music, any other audio (including satellite radio service), canned software (notwithstanding the function performed), and "any otherwise taxable tangible personal property electronically or digitally delivered, streamed or accessed."

The tax applies to these digital goods "whether electronically or digitally delivered, streamed or accessed and whether purchased singly, by subscription or in any other manner, including maintenance, updates and support."

Notably, Act 84 also characterizes software maintenance, updates and support for canned software as taxable tangible personal property. As a result of this law change, sales tax now applies to the vast majority of digitally downloaded or streamed products. The Pennsylvania Senate Appropriations Committee estimated the revenue that would be generated from taxing digital goods, including streaming services, to be approximately $46.9 million annually.

In addition, Act 84 places a cap on the sales tax vendor discount. Previously, vendors that timely reported and remitted sales tax to Pennsylvania were entitled to discount their sales tax liability by 1%. Effective for monthly sales tax returns due August 20, 2016, the discount is now the lesser of 1% of the sales tax collected; or (i) $25 per return for monthly filers; or (ii) $75 per return for quarterly filers; or (iii) $150 per return for semiannual filers. This provision negatively affects large remitters of sales tax.

Lastly, Act 84 provides exemptions for the following:

— Timbering (effective July 1, 2017)

— Services relating to setting up, tearing down or maintaining tangible personal property at a convention center (effective in 60 days)

Bank Shares Tax

Act 84 increases the rate of the Bank Shares Tax as follows:

— 0.89% per share through January 1, 2016

— 0.95% per share for calendar years beginning January 1, 2017, and each calendar year thereafter

Act 84 provides that, if an institution does not file the Reports of Condition, book values are determined by generally accepted accounting principles as of the end of the preceding calendar year. For institutions that do file Reports of Condition on a consolidated basis, Act 84 excludes from total bank equity capital the book value of total equity capital of the subsidiaries as follows:

— Up to 20% of the total equity capital of the subsidiaries for the calendar year beginning January 1, 2018

— Up to 40% of the total equity capital of the subsidiaries for the calendar year beginning January 1, 2019

— Up to 60% of the total equity capital of the subsidiaries for the calendar year beginning January 1, 2020

— Up to 80% of the total equity capital of the subsidiaries for the calendar year beginning January 1, 2021

— 100% of the total equity capital of the subsidiaries for the calendar year beginning January 1, 2021, and for each year thereafter

Other changes to the bank shares tax include the following:

— Modifying the deduction for the value of "any" goodwill recorded after June 30, 2001 (retroactively effective to January 1, 2014)

— Permitting a taxpayer to elect a Method 1 or Method 2 apportionment method

— Allowing, for tax years after December 31, 2016, a taxpayer to change its apportionment election, provided it receives prior permission from the Department

Tax amnesty program for fiscal year 2016 — 2017

Act 84 authorizes a tax amnesty program allowing taxpayers that are delinquent on any tax administered by the Department as of December 31, 2015, to come forward in exchange for: (i) forgiveness of liabilities incurred prior to January 1, 2011; (ii) abatement of half of the interest associated with the liability; and (iii) waiver of penalties. The Governor is to establish the dates of the amnesty program, which will run for 60 days and end no later than June 30, 2017.

Credits & incentives

Provisions of Act 84 create new tax credits, including:

— Waterfront Development Tax Credit for contributions of cash or personal property to a waterfront development organization

— Manufacturing and Investment Tax Credit for employers that increase their annual taxable payroll in one year by at least $1 million and can demonstrate the ability and intent to maintain new jobs for at least five years from the start date of the credit

— Coal Refuse Energy and Reclamation credit of $4 per ton of coal refuse used as a fuel in an electric generation facility (aggregate credit amount is $7.5 million for 2016-17 and $10 million for 2017-18, but no taxpayer may claim more than $2.22 million of the credit)

Act 84 also establishes additional Keystone Opportunity Zones, Keystone Innovation Zones and a Mixed-Use Development Tax Credit.

Other tax changes

Other tax law changes included in Act 84 do the following:

— Impose personal income tax on all lottery winnings, retroactive to January 1, 2016

— Increase the excise tax on each cigarette from 8 cents ($0.08) per cigarette to 13 cents ($0.13) per cigarette (effectively increasing the tax on cigarettes by $1.00 per pack of 20 cigarettes), effective August 1, 2016

— Create a Tobacco Products Tax to be imposed on the dealer or manufacturer at the time in which electronic cigarettes, smokeless tobacco products or roll-your-own cigarette products are first sold to a retailer in Pennsylvania (effective October 1, 2016 and due to the Department within 90 days of this date)

— Increase the tax on daily gross table game revenue set forth in 4 Pa.C.S. Section 13A62(a)(1) by an additional two percentage points, from 12% to 14%, effective August 1, 2016 through June 30, 2019

— Repeal the gross receipts tax on managed care organizations beginning January 1, 2017 (this revenue loss is offset by the imposition of an assessment administered by the Department of Human Services)

— Impose a criminal penalty for the use of tax suppression devices or zappers, so any person who sells, buys, installs, or possesses such a device commits a misdemeanor, and is liable for a fine (up to $5,000 if up to three zappers are found, up to $10,000 if more than three zappers are found) (these penalties apply in addition to any other penalties imposed by other provisions of the Pennsylvania tax law)

Implications

Pennsylvania's extension of its sales tax to cover streaming services is significant because, unlike the sales tax provisions in many other states that have attempted to do the same thing, Pennsylvania has added the term to its definition of "tangible personal property."

Eligible taxpayers should consider participating in the Pennsylvania tax amnesty program in order to receive the benefits of a waiver of penalties and one-half the interest as well as being subject to a limited look-back period.

Before contacting any client regarding Pennsylvania's tax amnesty program, please consult Policy Guidance, "Procedures for the provision of tax services related to state tax amnesty programs and state tax voluntary disclosure agreements" (SCORE Retrieval File No. YY3710), located in the Tax Practice Guidance & Tools database. Further, YY2366 - State Tax Desk review of state and local tax advice and governmental submissions and representation, requires the appropriate State Desk to be contacted prior to amnesty submissions.

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