We provide here a written summary of answers provided by the Department of Revenue to the committee at periodic question and answer sessions. 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 a specific fact situation may request a written letter ruling under 61 Pa. Code Section 3.3.

Q&A with the Pennsylvania Department of Revenue

How does the Department of Revenue determine on audit whether a corporate taxpayer's method of sourcing service receipts is reasonable?

Nov 15, 2019
Q:

As the Department of Revenue has not issued market-based sourcing regulations there are many areas not addressed in the Information Notice. How does the Department of Revenue determine on audit whether a corporate taxpayer’s method of sourcing service receipts is reasonable?

A:

During the course of an audit, the auditor requests a full description of the taxpayer's business activities, where the service is delivered, and the method used for sourcing those receipts. When the taxpayer's business model or sourcing method does not align with the specific guidance provided in the Information Notice 2014-01, the fact pattern is reviewed and a determination is made as to a reasonable method to source using the facts presented and the sourcing rules set forth in the statute (72 P.S. § 7401(3)2.(a)(16.1)(C). These unique fact patterns may be included in future departmental guidance.
 

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Disclaimer

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.