Pennsylvania Cuts Corporate Tax Rate and Makes Other Changes to Corporate Tax Law | McDermott Will & Emery


Pennsylvania Governor Tom Wolf signed the law into law omnibus tax legislation implement the Commonwealth’s budget for the 2022-2023 financial year. Among other things, the enacted legislation: (1) reduces the rate of net corporate income tax (CNIT) from 9.99% to 4.99% in a phased manner; (2) adopt market sourcing rules for receipts related to intangible assets; and (3) codifies the Pennsylvania Department of Revenue (DOR) CNIT Economic Nexus Rules described in Corporations Tax Bulletin 2019-04. In particular, the legislation enacted does not include Governor Wolf’s earlier proposal to strengthen the Commonwealth Related Party Interest and Intangible Expenses Act.


Pennsylvania’s CNIT rate is currently 9.99%, one of the highest corporate tax rates in the country. The enacted legislation provides for a decrease in Pennsylvania’s CNIT rate as follows:

  • from January 1, 1995 to December 31, 2022; 9.99%
  • from January 1, 2023 to December 31, 2023; 8.99%
  • from January 1, 2024 to December 31, 2024; 8.49%
  • from January 1, 2025 to December 31, 2025; 7.99%
  • from January 1, 2026 to December 31, 2026; 7.49%
  • from January 1, 2027 to December 31, 2027; 6.99%
  • from January 1, 2028 to December 31, 2028; 6.49%
  • from January 1, 2029 to December 31, 2029; 5.99%
  • from January 1, 2030 to December 31, 2030; 5.49%
  • January 1, 2031 and annually thereafter; 4.99%


The enacted legislation shifts Pennsylvania’s procurement regime for revenue from intangible assets from a performance cost regime to a market-based regime. Legislation generally generates gross revenue from the sale, rental or license of intangible property at the location where the property is used. In addition, legislation generally generates a broker’s securities sales revenue at its client’s location and credit card interest, fee, and penalty revenue at the cardholder’s billing address.

The legislation also contains detailed provisioning rules for interest, fees and penalties collected by a lender, usually the source of these receipts:

  1. Loans secured by real estate to the location of such real estate;
  2. Loans related to the sale of tangible personal property at the place where the property is delivered or shipped; and
  3. At the borrower’s place of residence (if not otherwise provided by law).

These procurement rule changes apply to tax years beginning after December 31, 2022. According to the Senate Appropriations Committee Tax note to the legislation, the purpose of the supply rule amendment is to “[a]line[] allocation rules governing sales of intangibles with sales of tangible personal property, real estate and services must be consistent with market supply (that’s to say, where the buyer paying for the sale or using the property is located). As discussed in a previous blog postthe Pennsylvania legislature changed the procurement regime for services from a performance cost-based regime to a market-based regime.

Nevertheless, the Pennsylvania DOR insisted that current law requires the use of a market-based approach to obtaining revenue from certain intangibles, despite the statutory performance cost regime currently in effect. For tax years prior to 2014, the Pennsylvania DOR also used a market-based approach to obtaining service revenue, despite the statutory performance cost regime then in place. It is the basis of the Synthes USA HQ Inc. v. Commonwealth case, which concerns whether the market-based approach to the provision of service revenue is permitted under the then-existing cost-of-performance law. Synthes is currently pending in the Supreme Court of Pennsylvania.

In Synthes, without much analysis, the Pennsylvania Commonwealth Court dismissed the argument that the 2014 law amendment showed that the market-based approach was not what the legislature had intended in previous years. It will be interesting to see how the Pennsylvania Supreme Court deals with this argument, as we expect taxpayers to make similar arguments regarding the Pennsylvania DOR’s position on sourcing revenue from Intangibles before 2023. .


Legislation enacted outlines economic nexus standards for CNIT purposes, including a rebuttable presumption that a company with sales of $500,000 or more originating in Pennsylvania has a substantial connection in the Commonwealth regardless of physical presence in the Commonwealth.

Although the Senate Appropriations Committee budget memo indicates that this change in Pennsylvania law only “[c]amends the economic nexus rules currently in place as Pennsylvania DOR tax policy issued through Corporations Tax Bulletin 2019-04,” the legislation states that the new legislative language applies to years of taxation commencing after December 31, 2022.


The changes made to the CNIT by the legislation passed are generally consistent with Governor Wolf’s budget proposal released in February (although Governor Wolf has proposed to complete the phasing in of the 4.99% CNIT rate over a different time frame). However, Governor Wolf’s February budget proposal also proposed to “strengthen” the rules for adding back related party interest and intangible expenses applicable under the CNIT, and the final budget bill makes no such changes.

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