State Tax Nexus Surprise? Pennsylvania Waiving Liability for Limited Time

  • Tax strategies
  • 3/4/2021
Pennsylvania state capitol building

If historical tax noncompliance exists in Pennsylvania or any other state, CLA can help you strategically mitigate tax, penalties, and interest.

Key insights

  • A Pennsylvania Voluntary Tax Compliance Program (VCP), recently instituted, runs through May 8, 2021.
  • The VCP is applicable to organizations that have created nexus in Pennsylvania due to maintaining inventory or storing property in the state.
  • The VCP provides for a limited lookback period to 2019.

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Generally speaking, owning property, such as inventory, in a state creates state franchise and an obligation to pay income taxes and collect sales and use taxes. If your organization has maintained inventory or stored property in Pennsylvania and has not historically paid state tax, you now have an opportunity for tax penalty relief and and release of liability for taxes owed during a limited lookback period.

Pennsylvania Voluntary Compliance Program Closes May 8, 2021

The Pennsylvania Department of Revenue (PA DOR) is offering a 90-day Voluntary Compliance Program (VCP) for businesses that have historically maintained inventory or stored property in Pennsylvania but are not paying Pennsylvania corporate income tax (and other tax types) or collecting sales and use taxes on taxable sales into the state. The VCP concludes on May 8, 2021.

The program offers a generous limited lookback period. Eligible participating organizations will not be liable for taxes owed prior to January 1, 2019 (essentially a two-year lookback period). Furthermore, taxpayers will be given full penalty relief.

To participate, organizations must complete a business activity-nexus questionnaire, disclosing name, certain company information, and business activities in the state. The questionnaire can be submitted online or via paper. After the PA DOR reviews the questionnaire, the organization will be contacted to discuss how to register to become compliant.

Additional opportunity: Pennsylvania Voluntary Disclosure Program

In conjunction with the VCP, Pennsylvania’s general Voluntary Disclosure Program (VDP) continues to  provide an opportunity for businesses (and individuals) who recently became aware of Pennsylvania tax obligations to come forward and meet their obligations voluntarily, without having to pay penalties.

Although not as favorable as the VCP, the VDP holds taxpayers responsible for payment of outstanding tax liabilities for only for three to five years plus the current year (depending on the tax type). Additional years’ tax liabilities are forgiven. This program may be applicable to organizations that have historical nexus that goes beyond owing inventory and storing property in Pennsylvania.

What creates nexus?

Common inventory nexus creating activities include storing inventory in a public warehouse; consigning inventory (which is owned by a consignor and held in the custody of a consignee); owning inventory that is held by a marketplace seller (for example, fulfillment through Amazon); selling items at a tradeshow, kiosk, or pop-up store; and, if not otherwise excluded, having inventory temporarily located in the state for the purpose of having work or services performed on it by an in-state provider.

How CLA can help

CLA can support you in the VCP process including helping you complete the PA DOR business activity-nexus questionnaire before it is submitted. This helps you determine upfront whether you qualify for the program and helps mitigate further inquiry from the PA DOR.

In addition, our team can help you understand nexus creating activities throughout the United States through a nexus review. If historical tax noncompliance exists, CLA can help you strategically enter a state or locality to mitigate tax, penalties, and interest.

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