Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of PICPA officers or members. The information contained in herein does not constitute accounting, legal, or professional advice. For professional advice, please engage or consult a qualified professional.

Pennsylvania Opens Door to Taxing Membership Fees

By Peter N. Calcara, PICPA vice president – government relations

As baseball season gets underway, it seems the Pennsylvania Department of Revenue (DOR) has decided to throw a curveball to the PICPA and other membership organizations. Or maybe it’s just an old-fashioned beanball. On Jan. 31, 2020, the DOR issued Sales and Use Tax Letter Ruling No. SUT-20-001, in which the DOR states that the “taxability of a membership fee depends upon what a member receives in exchange for the membership. If a member does not receive any taxable tangible personal property or taxable services in exchange for the fee, then the fee is not taxable. However, if a member receives taxable tangible personal property or taxable services in exchange for the membership fee, then the fee is taxable.”

Rules and Regulations stampsWhile SUT-20-001 acknowledges that a membership fee in and of itself is not taxable, it states unequivocally that “[i]f the membership fee includes the transfer of taxable tangible personal property, in addition to nontaxable services, the entire charge for the membership is subject to tax.”

This presents a host of issues, both internally and externally. Does this indicate a new focus on 501(c)(6) organizations by the department? Will the PICPA and other professional membership organizations now be subject to this tax for past years? The PICPA is assessing the ruling from many perspectives, including the expansion of the definition of tangible personal property to include digital items (Act 84 of 2016), and evaluating the different paths we could pursue, which includes a legislative solution.

The PICPA is very concerned about this ruling. As you can imagine, it has generated a lot of discussion and angst among the professional membership organizations throughout the state to whom we’ve spoken, and they share in our strong concern. Keep in mind that there was no public vetting on the letter ruling or notice as to its publication, but that’s not unusual. Unlike bulletins or regulations that typically have a public review process, letter rulings are unique because of their confidentiality.

As we work with the DOR, allies in the legislature, and other stakeholders, the PICPA will keep members informed of developments so you can advise your clients with the best, most up-to-date information possible.

Letter Ruling No. SUT-20-001 has been temporarily pulled off of DOR's website pending PICPA's meeting with department representatives later in February. We'll share more information on how the DOR intends to interpret this as it becomes available to us.

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