Q&A with the Pennsylvania Department of Revenue

Under what circumstances would an overriding royalty interest or a production payment interest in gas create nexus for a CNI Tax and/or Foreign Franchise Tax?

Jun 19, 2012
Since no definition of these terms has been provided, it is difficult to address these.
However, it is assumed that the interests are related to minerals or natural gas, which is located in Pennsylvania. It is also assumed that there is no ownership interest in the minerals or natural gas. Under these assumptions, if the payments in question were received due to an ownership interest in a non-corporate entity, the Department’s position is that there is nexus for corporate net income tax and capital stock/foreign franchise tax purposes for a corporate partner. 

The form of entity, relationship to other entities as well as other attributes including state of residency or domicile of the entity receiving income influence whether “corporate nexus” is or is not established.  Such details would have to be solicited or examined per taxpayer as to the extent or reach of nexus to PA Corporate or Personal Income Tax.

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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.