Q&A with the Pennsylvania Department of Revenue

Scenario: using apportionment factors to determine CNIT and foreign franchise tax liabilities

Jun 30, 2011
Q:

Considering each of the following situations independently, would Corporation X be entitled to utilize apportionment factors to determine its Corporate Net Income Tax and foreign franchise tax liabilities? In each case assume that Corporation X is subject to tax only in the indicated states:

1) Corporation X transacts business in Pennsylvania and Texas, where it is subject to the Texas Franchise (Margins) Tax.

2) Corporation X transacts business in Pennsylvania and Michigan, where it is subject to the Gross Receipts Tax element of the Michigan Business Tax but is exempt from the Business Income Tax element.

3) Corporation X transacts business in Pennsylvania and Ohio, where it is subject to the Commercial Activities Tax.

4) Corporation X transacts business in Pennsylvania and Nevada, which does not impose an income, privilege or shares tax. Under Pennsylvania nexus standards, Corporation X would be subject to a net income tax in Nevada if that state chose to impose such a tax.

5) Corporation X transacts business in Pennsylvania and Nevada, which does not impose an income, privilege or shares tax. Under Pennsylvania nexus standards, Corporation X would be subject to a privilege or shares tax in Nevada if that state chose to impose such a tax, but would not be subject to a net income tax under PL 86-272.

A:

All of the above examples Corporation X may apportion.

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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.