United States

Pennsylvania will use economic nexus standard for income taxes


In what will likely be a highly controversial development, the Pennsylvania Department of Revenue issued a notice asserting tax jurisdiction over corporations using an economic nexus standard. The announcement was made through Corporate Tax Bulletin 2019-04. Essentially, the department has declared that no physical presence is required for corporations to be subject to net income taxation in the commonwealth.

The department based its decision on an expansive interpretation of the U.S. Supreme Court’s Wayfair decision.  According to the department, the court’s holding “made certain” that no physical presence standard exists for purposes of limiting the ability of a state to impose a net income tax on an out of state taxpayer provided the requirements under the Due Process and Commerce Clauses of the Constitution are satisfied. 

The bulletin supersedes previous guidance set forth in Corporation Tax Bulletin 2004-01. Pennsylvania imposes its tax on corporations “doing business” or “carrying on activities” in the commonwealth (see 72 P.S. Section 7401 et seq.). Under the new standard, there will be a “rebuttable presumption” of taxability if a corporation has $500,000 or more in “direct or indirect gross receipts” from (1) the sale, rental, lease, or licensing of tangible personal property; (2) the sale of services; and/or, (3) the sale or licensing of intangibles, including franchise agreements.

The bulletin states that taxpayers claiming protection under P.L. 86-272 must continue to file a Pennsylvania Corporate Tax Report (Form RCT-101) and complete the necessary schedules to claim this exemption from tax.  The new nexus standards are effective for tax periods starting on or after Jan. 1, 2020.


The department’s assertion of economic nexus through an administrative pronouncement (rather than through statute or regulations) is highly unusual. As such, it will likely result in challenges to the department’s authority to issue such a rule. Moreover, the department’s conclusion that the Wayfair decision unequivocally supports its position that physical presence is not required in the corporate income tax context is also likely to be challenged.

Although it may appear to be a “bright line nexus standard,” the department’s bulletin merely states there is a rebuttal presumption of nexus if Pennsylvania sourced receipts reach or exceed $500,000. The language in the Bulletin is less than certain, and allows for companies to take positions.  

As a practical matter, the new economic nexus standard is likely to subject many more corporations to Pennsylvania corporate taxation. Companies that sell services and license intangibles into the commonwealth but do not have a physical presence should may have a new filing and tax obligation. Thus, they should assess their methodology for sourcing of receipts from services and intangibles for apportionment purposes. Additionally, any remaining Delaware Holding Company may become subject to tax under these new rules, and should carefully assess their operations.  

The new economic nexus standards have some collateral implications:

  • Being taxed in Pennsylvania will likely effect throwback statutes in other states.   
  • Companies that were not eligible to apportion their income and have historically filed only in Pennsylvania may now be eligible to apportion their income on their Pennsylvania return.  
  • Should loss companies file prior period returns based upon the economic nexus threshold to claim NOLs?  

The department’s Bulletin only pertains to Corporate Net Income Tax. It is unknown whether the department will take a similar position for other tax purposes including pass-thru businesses such as S corporations, partnerships, and limited liability companies.  

Due to the form of the guidance, the lack of clarity in the guidance, and the potential for collateral impact, companies should consult their tax advisor.


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