Pa. Temporarily Drops Business Income Rule Proposal
State and Local Tax attorney Jennifer Karpchuk was quoted in a Law360 article about the rescission of a proposed rule clarifying what constitutes apportionable business income for purposes of Pennsylvania state taxes. Under the proposed rule from the Pennsylvania Department of Revenue, "business income" encompasses all income from a taxpayer's unitary business, in which separate entities are considered one taxpayer if they have a strong enough connection. The department issued the proposal in June 2024, with a deadline of this year to finalize it; because it had not submitted a final rule, it opted to withdraw the proposed one, indicating it intends to reintroduce the rule later. With this in mind, Ms. Karpchuk cautioned that the withdrawal does not resolve the underlying issues surrounding the state's corporate income tax regime.
"Much of the proposed regulation represented the department's litigation positions. Therefore, these issues are unlikely to go away," she said. "Instead, the department is likely to continue to take similar positions on audit – but without the formal legislative authority and rulemaking process to validate those positions."