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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The City of Philadelphia has responded to the U.S. Supreme Court’s decision in South Dakota v. Wayfair, 585 US. ___ (2018), amending its Business Income and Receipts Tax (“BIRT”) regulations to impose economic nexus. The City’s BIRT is imposed annually upon every person engaging in any business in the City; it is a privilege tax, taxing the “privilege” of doing business in Philadelphia. [Phila. Code §19-2603].
The BIRT has two components: a net income component and a gross receipts component. Prior to 1998, both portions of the BIRT were subject to the solicitation plus standard – i.e., there must be “other activities” in addition to the solicitation of business to make a foreign corporation's conduct the doing of business. During 1998, the City enacted Bill No. 980005 which substantially changed the definition of when the BIRT was imposed upon gross receipts. Bill No. 980005 reduced the nexus standard for imposition of the gross receipts portion of the BIRT from the solicitation plus standard to maintaining an "active business presence" within the City. As amended, Phila. Code § 19-2603(3) provided that any person whose activities within the City were nothing more than the mere solicitation of business was subject to the gross receipts portion of the BIRT.
Pursuant to the newly amended regulations, beginning January 1, 2019, the active business presence and solicitation plus standards are replaced with an economic nexus standard – a business with no physical presence in Philadelphia is considered to have nexus with the City, and therefore be subject to the BIRT, if it: (1) has generated at least $100,000 in Philadelphia gross receipts during any 12-month period ending in the current year; and (2) has sufficient nexus with Philadelphia to establish nexus under the U.S. Constitution. If a taxpayer’s activities are limited to the solicitation and sale of tangible personal property, a taxpayer should still be protected from the net income portion of the BIRT by Public Law 86-272 – but such federal protection does not extend to the gross receipts portion of the BIRT.
The Philadelphia Department of Revenue formally filed the amended regulations on January 29th. There will be a 30 day period during which the amended regulation will be published in local newspapers and during which time a hearing may be requested. Assuming there are no requests for a hearing, the amendment would become effective thirty (30) days from filing.
Those businesses that do nothing more than sell products or services to customers in Philadelphia will need to reevaluate their potential nexus with the City and liability for purposes of the BIRT. Should you have any questions, please reach out.