On July 13, 2016, Pennsylvania Governor Tom Wolf (D) signed into law H.B. 1198, 2015-2016 Reg. Sess. (Pa. 2016), which broadens the sales and use tax base to include digital goods (whether digitally or electronically delivered, streamed, or accessed), and includes provisions that require the Department of Revenue to revise the tax due upon review of an amended corporate tax return. In addition, H.B. 1198 makes various changes to the Bank and Trust Company Shares Tax, establishes a 60 day tax amnesty program, and amends and creates several tax credits and incentives.
Sales/Use Tax on Digital Goods
Effective as of August 1, 2016, H.B. 1198 broadens the sales and use tax base to include digital goods whether digitally or electronically delivered, streamed, or accessed. Specifically, H.B. 1198 defines tangible personal property to include video, photographs, books, music, games, canned software, applications (or “apps”), satellite radio service, and any other taxable tangible personal property digitally or electronically delivered, streamed, or accessed. These items, including updates, support, and maintenance, are subject to tax whether purchased by subscription, singly, or in any other manner. Previously, the Department had administratively taxed canned software accessed electronically.
Taxpayers should consider updating their sales and use tax systems to collect the appropriate tax on sales of digital goods beginning August 1, 2016. In addition, taxpayers should assess whether use tax is due on a purchase of a digital good where no sales tax has been paid.
Tax Amnesty Program
H.B. 1198 requires the governor to establish a 60 day tax amnesty program for a period ending no later than June 30, 2017. In addition, H.B. 1198 requires the Department to develop and publish guidelines for the program within 60 days of July 13, 2016.
The amnesty program applies to any tax administered by the Department and to liabilities delinquent as of December 31, 2015, including a liability related to an unfiled return. H.B. 1198 imposes a 5-percent non-participation penalty.
The amnesty program entitles a participating taxpayer to waiver of all penalties and 50 percent of interest and a limited look back period for any unknown liabilities due prior to January 1, 2011. However, the amnesty program requires the taxpayer to file all original and amended returns for all required years, and bars a participating taxpayer from participating in a future amnesty program.
The amnesty program provides an opportunity for a taxpayer with a delinquent liability to qualify for 100-percent penalty waiver and 50-percent interest waiver. However, Pennsylvania, like most states, has a Voluntary Disclosure Agreement (or “VDA”) program for taxpayers with liabilities unknown to the state that voluntarily come forward and report and pay tax. Under the VDA program, a taxpayer typically only receives penalty waiver, and the state applies look back periods as follows: (i) corporate taxpayers – 5 years, plus the current year; and (ii) non-corporate taxpayers – 3 years, plus the current year. Taxpayers considering voluntarily reporting unknown liabilities should assess whether amnesty or a VDA is more advantageous.
We welcome the opportunity to discuss these law changes with you. Please contact your Hertzbach Tax Advisor at 800.899.3633.