By Peter Calcara, vice president – government relations
Pennsylvania lawmakers return to session on Jan. 22 for the start of the second leg of the 2017-2018 legislative cycle. A host of issues held over from 2017 are pending consideration in both the House and Senate as lawmakers await Gov. Tom Wolf’s Feb. 6 budget address on the 2018-2019 fiscal year. A new issue has emerged that will be of interest to many PICPA members and their business clients.
On Dec. 22, 2017, the Pennsylvania Department of Revenue (DOR) issued Corporation Tax Bulletin 2017-02 (bulletin) concerning the disallowance and recovery of 100 percent depreciation under the Internal Revenue Code (IRC). The DOR bulletin is in response to the Tax Cuts and Jobs Act of 2017, which has expanded bonus depreciation to 100 percent for assets placed in service between Sept. 28, 2017, and Dec. 31, 2022. After Dec. 31, 2022, the bonus depreciation percentage is reduced 20 percent annually.
Bonus depreciation is a method of accelerated depreciation that allows corporations to immediately deduct an additional percentage of the purchase price of eligible business assets in the year in which the assets are placed in service. This was offered to encourage corporations to invest in additional capital assets. Originally, bonus depreciation was set at 30 percent, then later increased to 50 percent. From September 2010 to December 2011, bonus depreciation was temporarily increased to 100 percent before returning to 50 percent.
With the latest bulletin, the DOR changed its policy regarding 100 percent bonus depreciation. With respect to a bonus asset placed in service after Sept. 27, 2017, the DOR will not recognize 100 percent bonus depreciation for corporate net income tax purposes. Rather, under the application of the DOR’s additional bonus depreciation deduction formula, a corporate taxpayer will not get to deduct the added back bonus depreciation until the asset is sold or otherwise disposed.
This currently makes Pennsylvania the only state to fully disallow depreciation on certain assets.
PICPA member and state Rep. Frank Ryan, CPA (R-Lebanon), introduced legislation to amend the corporate net income tax statute to allow depreciation on the 100 percent bonus. House Bill 2017 is pending in the House Finance Committee.
The PICPA Committee on State Taxation has engaged the Wolf administration, state lawmakers and staff, and other stakeholders in this public policy debate. We have developed a one-page issue brief that provides a balanced perspective on the issue as well as potential remedies.