Adopted on January 24, and applicable for tax years beginning on or after January 1, 2019, Philadelphia Regulation 103 generally provides that a taxpayer is subject to the city’s Business Income and Receipts Tax (BIRT) if it has generated at least $100,000 in Philadelphia gross receipts during any 12-month period ending in the current year even if it has no physical presence in the city. The BIRT has two tax base components - a tax paid on gross receipts and a tax based on income. The regulation provides that the reason for the change is to update the BIRT’s nexus standard to reflect the US Supreme Court’s Wayfair decision.
The amended regulation also provides guidance on P.L. 86-272 protections and the BIRT’s pre-2019 ‘active presence’ standard.
Philadelphia joins San Francisco as significant local jurisdictions with an economic nexus standard for a general local tax (with Philadelphia’s BIRT having both an income and a gross receipts element).
Questions arose following Wayfair concerning whether a taxpayer’s nexus with a state would extend to that taxpayer having nexus with all localities in the state. Philadelphia appears to take the approach that economic connections (i.e., Philadelphia-sourced receipts) with the city itself are required in order for the local BIRT to apply to businesses with no physical presence in the city. San Francisco took a similar approach with its $500,000 city gross receipts nexus threshold (click here for our San Francisco Insight).