Q&A with the Pennsylvania Department of Revenue

Scenario: DEF Corp., a PA based corporation doing business throughout the world, licenses a trademark to GHI Corp, an OH based corporation.

Jun 30, 2011
Scenario:
DEF Corp., a PA based corporation doing business throughout the world, licenses a trademark to GHI Corp, an OH based corporation. Under the terms of the licensing agreement GHI Corp. pays DEF Corp. a royalty based upon a percentage of sales of products upon which the trademark is placed. DEF Corp. maintains the trademark at its PA headquarters. GHI Corp. manufactures products using DEF Corp.’s trademark. GHI Corp. manufactures products at its own facilities in PA and OH. In addition, the corporation contracts with a manufacturer located in China to manufacture certain products with the trademark. GHI Corp. sells the manufactured products throughout the world and pays DEF Corp. royalties based upon a percentage of those sales. 

Q:
Assuming that GHI Corp. is able to provide DEF Corp. with (1) a breakout of sales based upon where the products were manufactured, and (2) a breakout of ultimate product sales by location, for purposes of computing DEF’s sales factor numerator for CNI Tax and CS/FF Tax purposes, does DEF Corp. source royalties to PA based upon (1) the corporation’s domicile, (2) where the products giving rise to the royalties were manufactured, (3) where the products giving rise to the royalties were sold, or (4) OH, the commercial domicile of GHI, Corp?

Assuming that GHI Corp. is only able to provide DEF Corp. with a breakout of sales based upon where the products were manufactured, for purposes of computing DEF’s sales factor numerator for CNI Tax and CS/FF Tax purposes, please explain whether DEF Corp. would source royalties to PA based upon (1) the corporation’s domicile, (2) where the products giving rise to the royalties were manufactured, or (3) OH, the commercial domicile of GHI, Corp? 

Assume that GHI Corp. is not able to provide DEF Corp. with (1) a breakout of sales based upon where the products were manufactured, or (2) a breakout of ultimate product sales by location, for purposes of computing DEF’s sales factor numerator for CNI Tax and CS/FF Tax purposes, please explain whether DEF Corp. would source royalties to PA based upon the corporation’s domicile, or (2) OH, the commercial domicile of GHI? 
 
A:

The issues raised in this question are not general in nature. The person asking this question should consider making full disclosure of the facts, including the taxpayer’s identity, and submitting these issues as letter ruling request to the Department.
 

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These documents provide a summary of the answers provided by the Department of Revenue to the PICPA Committee on State Taxation at its annual question and answer session. These documents are classified as revenue information issued for informational purposes only for the convenience of PICPA members. Pursuant to 61 Pa. Code Section 3.4, these documents should not be relied upon for any purpose or used in tax appeals. Taxpayers requiring a binding opinion on their specific fact situation may request a written letter ruling under 61 Pa. Code Section 3.3.