News and Insights

Pennsylvania Department of Revenue Newsletter Reminds Taxpayers of Recent Changes

Tax Development Dec 12, 2016

Pennsylvania’s Department of Revenue has issued a newsletter discussing various tax issues ranging from its reciprocity agreement with New Jersey to the end of gross receipts tax on Medicaid Managed Care Organizations.

For four decades, Pennsylvania and New Jersey have had a personal income tax reciprocity agreement that allows Pennsylvania employers of New Jersey residents to withhold New Jersey personal income tax on behalf of their New Jersey resident employees and remit that tax to the state of New Jersey. Likewise, New Jersey employers of Pennsylvania residents could withhold Pennsylvania personal income tax on behalf of their Pennsylvania resident employees. In late September, New Jersey Governor Chris Christie announced the state’s intention to terminate the agreement, which some sources estimated would cost New Jersey $180 million in annual tax revenue and impact Pennsylvania to the tune of approximately $5 million in annual lost revenue. This disparity is largely due to New Jersey’s top personal income tax rate of 8.97%, versus Pennsylvania’s flat 3.07%, which allows Pennsylvania residents working in New Jersey to commute back home to a much lower tax burden. However, last month, Governor Christie reversed his statement on terminating the agreement. Pennsylvania had been preparing for the consequences of the terminated agreement, but in light of Governor Christie’s reversal, has since instructed businesses to disregard any previous communication about the anticipated changes.

The Department of Revenue reminded taxpayers of an upcoming 60-day tax amnesty, running from April 21, 2017 through June 19, 2017, during which all penalties and half interest owed on outstanding tax balances will be waived for qualifying taxpayers who apply through the amnesty program and pay their delinquent taxes. Participants must apply, file missing returns, and pay the tax and half of the interest owed by the end of the amnesty period.

Tax on Other Tobacco Products
Payment for the new tax on other tobacco products is due by December 29, 2016, along with the floor tax return, ReV-1141. The first filing period for the quarter from October through December is due by January 20, 2017, but the filing frequency changes to monthly for periods thereafter. Other tobacco products include e-cigarettes, pipe tobacco, chewing tobacco, snuff, and any other tobacco products for chewing, ingesting, or smoking, except cigars. The tax on roll-your-own tobacco takes effect December 14, 2016. The floor tax return and payment is due March 14, 2017, and returns for the first regular filing period are due January 20, 2017.

The Department of Revenue has consolidated the business registration functions previously managed separately by the Bureau of Business Trust Fund Taxes and the Bureau of Corporation Tax into one centralized Tax Registration Office. The Department hopes the consolidation will provide taxpayers with one place to register and update account information for the following tax types: corporation taxes; employer withholding tax; promoter license; public transportation assistance tax license; sales tax exempt status; sales, use, hotel occupancy tax license; small games of chance license/certification; transient vendor certificate; use tax; and vehicle rental tax. 

Medicaid Managed Care Organizations
Effective January 1, 2017, gross receipts tax is no longer imposed on Medicaid Managed Care Organizations (MMCO) doing business in Pennsylvania. Final 2016 returns are due March 15, 2017, but organizations may request an extension to May 15, 2017. The Pennsylvania Department of Human Services began implementing health-related assessments on certain managed care organizations on July 1, 2016.

A few months back, it looked like longstanding policy between New Jersey and Pennsylvania was going to change. This development reaffirms the tax relationship between the two states and brings clarity to those residents that travel back and forth to work.