SALT Blawg – State and Local Tax Blog
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Effective July 1, 2019, amendments have been made to Section 202 of the Business Income and Receipts Tax (“BIRT”) Regulation, which will have an effect on taxpayers starting business activity within Philadelphia during calendar year 2019 and thereafter.
Previously – and still in effect for those taxpayers that commenced business during tax years 2018 and prior – a new business was required to not only pay the tax due for the first year of operation, but also make a 100% estimated tax payment in the amount of the first year tax liability.
The Amendments now allow taxpayers some time to get their business up and running before requiring the payment of the estimated tax. For a taxpayer starting a business during 2019, it will pay the BIRT for the initial tax year by April 15th of the calendar year following the tax year the business commenced – however, the taxpayer will not make any estimated tax payments. On the second tax return filed the subsequent year, the taxpayer is required to make an estimated tax payment towards the third-year tax return equal to 100% of the actual tax due on the second tax year. Further, the taxpayer may elect to make four quarterly estimated tax payments (due April 15, June 15, September 15, and January 15 of the third calendar year in business). With the filing of the third-year tax return, the taxpayer will be required to make a 100% estimated payment towards the estimated tax for the fourth-year return.
For instance, ABC Inc. commenced business in Philadelphia on July 1, 2019. The 2019 BIRT return is due April 15, 2020. ABC Inc.’s Philadelphia tax liability is $100. With this first return, ABC will only be responsible for paying the tax due ($100) for tax year 2019.
With the filing of the 2020 tax return (i.e., the second-year BIRT return) due April 15, 2021, ABC will pay the tax due for tax year 2020 and may elect to either: (1) make a single payment of the estimated tax; or (2) make quarterly estimated tax payments (each equal to 25% of the tax calculated for 2020). ABC Inc.’s Philadelphia tax liability for its second year of operations is $200. Therefore, ABC Inc. owes $400 ($200 liability + $200 estimated payment) – it has the option of paying all $400 on April 15, 2021 – or, it can pay $250 on April 15, 2021; $50 on June 15, 2021; $50 September 15, 2021; and $50 on January 15, 2022.
With the filing of the 2021 tax return (i.e., the third-year BIRT return) due April 15, 2022, ABC will pay any remaining unpaid tax for Tax Year 2021 and make a 100% estimated tax payment for Tax Year 2022 based on the tax liability for Tax Year 2021.
Should you have any question about starting a business in Philadelphia or your tax responsibilities, please reach out.
- Shareholder, S.A.L.T. Practice Co-Chair
Jennifer Weidler Karpchuk represents companies and individuals in various matters related to state and local taxation, with an emphasis on the minimization of state and local tax obligations. She has extensive experience ...