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Pennsylvania

Earlier this year, the Pennsylvania Department of Revenue issued temporary guidance regarding telework during COVID-19 and the related tax implications thereof.  The Department has now issued an end date to its temporary policies: guidance issued by the Department is in effect until the earlier of June 30, 2021 or 90 days after the Proclamation of Disaster Emergency in Pennsylvania is lifted.

Ordinarily, the presence of employees working temporarily from home within Pennsylvania is sufficient to establish nexus for out-of-state businesses for purposes of the Corporate Net Income Tax (“CNIT”) or Sales and Use Tax (“SUT”).  Pursuant to the Department’s guidance, where employees are temporarily working from home due to COVID-19, the Department will not seek to impose CNIT nexus or SUT nexus solely on the basis of the temporary activity. 

Further, for purposes of sourcing, where an employee is working from home temporarily due to COVID-19, the Department does not consider that to be a change to the sourcing of the employee’s compensation.  Thus, for those residents who were working in Pennsylvania before the pandemic, their compensation remains Pennsylvania source income for all tax purposes – including PA-40 reporting, employer withholding, and three-factor business income apportionment purposes for S Corps, partnerships, and individuals.  Conversely, compensation of Pennsylvania residents who were working out-of-state prior to the pandemic would remain sourced to the other state.  The Pennsylvania resident would still be eligible to claim a resident credit for tax paid to the other state on his/her compensation.

Philadelphia

Consistent with Pennsylvania, the Philadelphia Department of Revenue announced that its temporary nexus and apportionment policies will end the earlier of June 30, 2021 or 90 days after the Proclamation of Disaster Emergency in Pennsylvania is lifted.  For purposes of nexus, ordinarily, the presence of employees working temporarily from home within Philadelphia is sufficient to establish nexus for out-of-Philadelphia businesses for purposes of the Business Income and Receipts Tax (“BIRT”).  However, due to the COVID-19 pandemic, the Philadelphia Department of Revenue temporarily waived legal nexus thresholds for purposes of the BIRT.   

For purposes of apportionment, in exercising its authority to provide for alternative apportionment, the Department issued a special rule for purposes of determining taxable receipts and apportionment in response to COVID-19. For Philadelphia non-resident employees who were performing services from within Philadelphia and were not previously required to work from home prior to the pandemic, the Department deems such services to be performed within Philadelphia for purposes of sourcing receipts for the BIRT and Net Profits Tax (“NPT”).  Conversely, receipts from services of Philadelphia resident employees who have been performing services for employers outside of Philadelphia before the pandemic and are now temporarily working from home in Philadelphia solely as a result of the pandemic will not be sourced to Philadelphia for purposes of the BIRT and NPT.

If you have any questions about how Pennsylvania’s guidance or Philadelphia’s policies affect you, please contact us.  Jennifer Karpchuk can be reached at jennifer.karpchuk@chamberlainlaw.com.