Pennsylvania Amends When Local Government Can Tax Companies

Prior to introducing an amendment to Pennsylvania’s Local Tax Enabling Act last year, Representative Dunbar (R) pointed out that tax policy should be fair and certain. He argued that the existing Local Tax Enabling Act was neither and that his proposed amendments would “remove ambiguity and … make it absolutely clear when a municipality may tax a company performing work within its borders."

Those amendments, recently approved as Act 42, take effect retroactively on January 1, 2014. They allow local tax authorities to impose a tax upon businesses for the privilege of doing business in the jurisdiction, provided:

• “The privilege is exercised by conducting transactions in the jurisdiction of the levying local tax authority for all or part of 15 or more calendar days within the calendar year;” or
• "The privilege is exercised through a base of operations in the jurisdiction of the levying local taxing authority."

“Base of operations” is defined as “an actual, physical and permanent place of business from which a taxpayer manages, directs and controls its business activities at that location.”

The newly amended Local Tax Enabling Act should provide a bright-line test, allowing little or no room for ambiguity.

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