SALT Blawg – State and Local Tax Blog
State and Local Tax ("SALT") issues require state and local tax knowledge. Chamberlain Hrdlicka's SALT Blawg provides exactly that knowledge with news updates and commentary about state and local tax issues.
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In response to various issues created by COVID-19, the Philadelphia Department of Revenue (“Department”) has issued guidance to taxpayers related to the City’s Wage Tax, Use & Occupancy (“U&O”) Tax, and Business Income & Receipts Tax (“BIRT”).Wage Tax
On November 5, 2020, the Department issued revised guidance regarding Wage Tax withholding requirements for Philadelphia-based employers. This is not a change in position; the guidance serves to explain the City’s policy that was in effect pre-COVID. The guidance explains that Philadelphia applies the “requirement of employment” test in order to determine whether a non-resident’s base of operations is the employer’s Philadelphia location. If a Philadelphia employer requires a non-resident employee to perform duties outside of Philadelphia (including working from home), that employee is exempt from the Wage Tax for those days spent fulfilling that requirement. However, if a non-resident works from home for his or her own convenience, that employee is not exempt from the Wage Tax, even if the Philadelphia employer authorizes the work from home arrangement. For Philadelphia residents, the City requires an employer to withhold and remit Wage Tax, regardless of where the individuals perform their duties.
Those employers intending to require their employees to work-from-home should review their work-from-home policies to ensure they are sufficiently stated to obviate the need for payment of the Wage Tax. Non-resident employees who had Wage Tax withheld during the time they were required to work from home during 2020 may apply for a refund beginning in 2021. Employees must provide a letter from their employer, on company letterhead, stating they were required to work from home.
Use & Occupancy Tax
On November 25, 2020, the Department issued U&O tax guidance for restaurants and other food service businesses affected by “Safer at Home” restrictions. The Safer at Home restrictions, issued November 16th, order businesses to close their indoor dining rooms in an attempt to curtail the spread of COVID-19. The Department’s guidance provides that those businesses that are affected by the restrictions are not subject to the U&O tax on the portion of their business used for indoor dining. The policy is in place from November 20th at 5pm through January 1, 2021. When filing, taxpayers should use “Line 3 - Non-taxable Exempt Amount” of the filing form to indicate the portion of their property exempt from the U&O tax. Due dates to pay the tax remain the same.
Those taxpayers who have already filed and paid November and/or December 2020 U&O tax but are now eligible for exemption must amend their November and/or December returns and either: (1) request a refund via a refund petition form; or (2) request that the payment be moved forward to the following period by emailing email@example.com. Any landlords who did not remit the tax but have collected it through regular rent collection must refund applicable portions of the tax to their tenants.
Business Income & Receipts Tax
On December 1, 2020, the Department issued BIRT refund guidance for businesses that overestimated their 2020 BIRT estimated payment. In order to receive a refund, such businesses must amend their 2019 BIRT return using the City’s eFile/ePay website.
The refund will be based on the difference between the original return and the new estimated payment amount. Notably, underestimating BIRT liability will result in interest and penalty – calculated back to April 15, 2020.
Upon receipt of the amended return, a business will receive a letter from the Department alerting it that the Department received the return. Upon receipt of this letter, the Department estimates that businesses can expect to receive their refund in approximately six to eight weeks.
For more information, the City’s guidance can be accessed at: https://www.phila.gov/documents/coronavirus-tax-guidance/