Q&A with the Pennsylvania Department of Revenue

Scenario: Interest received from a partnership in a corporation’s sales factor

Dec 08, 2016
Scenario:

DEF Corp. owns a 20 percent interest in GH LP.  GH LP does business in Pa.  DEF Corp. loans money to GP LP for which it earns interest. For federal income tax purposes, the interest on the loan is treated as a guaranteed payment.

Q:

In computing its sales factor, would DEF Corp. include the interest received from the partnership in the corporation’s sales factor?

A:

The sales of corporate partners, includes all receipts of the partnership as if earned by the corporation.  To the extent the interest is part of the receipts earned by the partnership,  the partner’s share of the sales of the partnership sales is considered directly earned by the partner and all income is included in the sales factor.

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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.