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Pennsylvania updates tax credit and deduction programs

August 2021

In brief

Enacted on June 30, 2021, H.B. 952 provides an update to Pennsylvania’s Qualified Manufacturing Innovation and Reinvestment Deduction (QMIRD). Applicable to tax years beginning after December 31, 2020, the deduction applies to Pennsylvania taxable income (i.e., post-apportionment). 

H.B. 952 provides updated deadlines for a number of credit and incentive programs in the state and also makes changes to the administration of tax credit programs.

The takeaway: Manufacturers considering Pennsylvania investments should be aware of the significant benefit provided by H.B. 952. Eligible multistate taxpayers could expect the QMIRD deduction to significantly impact Pennsylvania taxable income due to the deduction being applied to post-apportioned income. 

The bill replaces the burdensome September 15 R&D tax credit deadline with a December 1 filing date to allow calendar-year taxpayers to first report and file their federal returns. Finally, updates related to the administration of tax credit programs introduce additional reporting requirements and grant taxpayers an ability to appeal to the Pennsylvania Department of Revenue.

In detail

QMIRD background

Pennsylvania offers a deduction to taxpayers making a capital investment to create or increase manufacturing capacity. To qualify, a taxpayer must demonstrate a private capital investment in excess of $60 million related to the creation of new or refurbished manufacturing capacity within three years of a designated start date. 

For capital investment projects in excess of $60 million but less than $100 million, the maximum allowable deduction is 37.5% of the private capital investment utilized in the creation of new or refurbished manufacturing capacity. A taxpayer may utilize this deduction in an amount not to exceed 7.5% of the project’s private capital investment in any one year of the succeeding 10 tax years.

For capital investment projects in excess of $100 million, the maximum allowable deduction is 25% of the private capital investment utilized in the creation of new or refurbished manufacturing capacity. A taxpayer may utilize this deduction in an amount not to exceed 5% of the project’s private capital investment in any one year of the succeeding ten tax years.

The deduction may be utilized to offset up to 50% of state income tax liability. The deduction is non-transferrable and may not be carried forward.

Taxpayers work with the Department before starting any project and submit an application. Subsequently, taxpayers will receive a project commencement letter to begin the qualified project. The commencement letter contains information on job creation, payroll and investment. Once the project is complete, the business submits a Project Completion Report to the Department for final review. These documents will be used to verify jobs and payroll at the project site along with investment information. An award letter will be issued certifying the satisfaction of the requirements and identifying the deduction awarded to the taxpayer.

QMIRD applied post-apportionment starting in 2021

Prior to the change, the QMIRD was applied against a taxpayer’s pre-apportioned income. As a result of H.B. 952, the deduction is applied after allocation and apportionment of income for tax years beginning after December 31, 2020.

Research and Development Credit updated deadlines

Effective 30 days after its June 30 enactment, H.B. 952 updates the following Research and Development Tax Credit deadlines:

  • The application deadline is updated from September 15 to December 1 relating to expenses incurred in the tax year that ended in the prior calendar year. 
  • Department approval is extended from December 15 of the calendar year to May 1 of the second calendar year following the close of the tax year during which the expense was incurred.

Keystone Opportunity Zone updated deadlines

H.B. 952 provides the following changes to the Keystone Opportunity Zone Program:

  • The application deadline for the additional Keystone Opportunity Expansion Zones, authorized under Act 13 of 2019, is extended from October 1, 2021, to October 1, 2022 and the approval deadline is extended from December 31, 2021, to December 31, 2022
  • DCED may grant a five-year extension for a Keystone Opportunity Zone located within a county of the third class with a population between 350,000 and 410,000.

Administrative changes

H.B. 952 also addresses changes to the administration of tax credit programs, including: an expansion of the oversight of administering agencies, an increase in taxpayer responsibilities, and the establishment of an appeals process. Furthermore, the Department of Revenue may require electronic filing for applications for tax credits or tax benefits and may require additional documentation and verification related to such applications. The Department also may issue assessments against taxpayers for improper use of tax credits or benefits and may be represented in all petition-related proceedings. Taxpayer reporting requirements related to tax credits or tax benefits have also been expanded to allow for greater transparency. Specifically, taxpayers must report annually to the Department or administering agency after approval and until the tax credit or tax benefit is fully used.

Contact us

John Flock

John Flock

Partner, State and Local Tax, PwC US

Scott Austin

Scott Austin

Principal, PwC US

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