Multi-state Income Taxes | Companies expanding into Pennsylvania

Pennsylvania State Tax Filing

Pennsylvania is headquarters to some of the country’s biggest companies, including brands along the likes of Comcast. The state is wedged between several largest cities with adequate infrastructure that grants easy access between states. While many big brands are thriving in this state, Pennsylvania is perfectly geared to support small businesses. This state provides small business tax incentives to encourage entrepreneurship and small business development. If an educated workforce is something your business is not willing to compromise, there is no need for concern in Pennsylvania – the state boasts a number of colleges and universities, which supports a highly competent workforce.

If you have recently expanded your business into Pennsylvania, or if you’re considering doing so, understanding the cost of apportionment is important to help you accurately report earnings to the IRS and local governments. Here are the tax filing requirements for entities and individuals operating in Pennsylvania:

  • S Corporations

    • Filing Requirements
      • All corporations and limited liability companies doing business in Pennsylvania are required to pay corporate net income tax. Businesses that elect federal subchapter S status are considered Pennsylvania S corporations and are subject to the 9.99 percent corporate net income tax only to the extent of built-in gains.
      • Rather, shareholders in the businesses considered S Corporations are taxed at the personal income tax rate, 3.07 percent. Shareholders of an S Corporation include their shares of income, loss and credit on their personal income tax returns.
      • Partners in a partnership and members of an LLC taxed as a partnership or S Corporation are taxed at the personal income tax rate, 3.07 percent.
    • Allocation & apportionment
      • Three Factor Formula: Double-Weighted Sales where sales are 50%, payroll is 25% and property is 25%
      • Market-based apportionment
        • Pennsylvania follows the market-based rule in sourcing receipts from the performance of services to the state. Sales from the sale of service are in Pennsylvania if the service is delivered to a location in Pennsylvania. If the service is delivered to a location both in and outside the state, the sale is allocated based upon the percentage of the total value of the service delivered to a location in Pennsylvania.

  • Partnerships

    • Filing Requirements
      • All corporations and limited liability companies doing business in Pennsylvania are required to pay corporate net income tax.
      • Partners in a partnership and members of an LLC taxed as a partnership or S Corporation are taxed at the personal income tax rate, 3.07 percent.
    • Allocation & apportionment
      • Three Factor Formula: Double-Weighted Sales where sales are 50%, payroll is 25% and property is 25%
      • Market-based apportionment
        • Revenues received from customers within the state

  • Employees & individual filers

    • The following individuals are required to file a 2021 Pennsylvania individual income tax return:
      • Every resident, part-year resident or nonresident individual must file a Pennsylvania Income Tax Return (PA-40) when he or she realizes income generating $1 or more in tax, even if no tax is due (e.g., when an employee receives compensation where tax is withheld).
      • A resident is taxed on all of his or her taxable income whether it is received from sources inside or outside Pennsylvania. A resident taxpayer is allowed a resident credit for income taxes imposed by and paid to other states based upon the income that is subject to Pennsylvania personal income tax. Such taxpayers should complete PA-40 Schedule G-L, Credit for Taxes Paid by PA Resident Individuals, Estates, or Trusts to other States. PA-40 Schedule G-L must include a copy of the tax return filed with the other state.
      • Nonresidents are subject to tax only on income from the eight enumerated classes of income earned, received or acquired from Pennsylvania sources. The eight classes of income are: compensation; net income (loss) from the operation of a business, profession, or farm; net gains (loss) from the sale, exchange, or disposition of property; net income (loss) from rents, royalties, copyrights, and patents; interest; dividends; estate or trust income; and gambling or lottery winnings. Nonresidents are not subject to Pennsylvania tax on ordinary interest and dividends from investments, or gains realized on the sale, exchange, or disposition of intangible property derived from sources within Pennsylvania. Losses on the sale of intangible property may not be used to offset any taxable gains. Nonresidents are subject to tax on interest and dividends from investments and gains realized on the sale, exchange, or disposition of intangible property derived from sources within Pennsylvania when employed in the operation of a business, profession, or farm.
      • A part-year resident is subject to the Pennsylvania personal income tax as a resident for the portion of the year the individual was a resident of Pennsylvania. The same taxpayer is subject to the Pennsylvania personal income tax as a nonresident for the remaining portion of the year.
      • For the portion of the year the person did not reside in Pennsylvania, a part-year resident is not subject to Pennsylvania tax on ordinary interest, dividends, gains from intangible property, and any other intangible income.

Ensuring Accurate Tax Filing

Keeping a handle on these different laws and tax implications might be difficult for your staff members but can be accomplished by outsourcing a CPA. Allow an expert who deals with business structuring, accounting, and taxation regularly set up accounting software to factor in applicable tax laws for each US state.

Fusion CPA recently expanded into new states bringing us firsthand experience and knowledge. We have a team of certified public accountants who are highly skilled in handling multistate taxes. Our team of professionals understands the federal and state laws in various states and jurisdictions.

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This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.

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