January 29, 2020

Background

On January 23, 2020, the Pennsylvania Department of Revenue (“Revenue”) issued Corporation Tax Bulletin 2020-01 (the “Bulletin”).  The Bulletin addresses the issue of sales for resale in the context of Pennsylvania’s Gross Receipts Tax (“GRT”) and sets forth a procedure by which GRT taxpayers can more easily substantiate their exemption claims.

Application of GRT

At a high level, Pennsylvania imposes GRT on both the (A) gross receipts received from sales of telecommunications and (B) gross receipts received from sales of electric energy.  Pennsylvania law specifically exempts sales for resale from GRT.  In the context of both telecommunication sales and electric energy sales, this exemption is applicable if a taxpayer demonstrates that it is making a sale to an entity that will itself be subject to GRT upon gross receipts it will derive from such resale.

Historic Problems Documenting Sales for Resale

 A GRT taxpayer claiming a sale for resale exemption historically had no way to substantiate that its counterparty was actually going to resell the telecommunications/electric energy in a taxable transaction.  In the context of Pennsylvania’s sales tax, resellers provide an exemption certificate to a seller and the seller is permitted to rely on the same for purposes of claiming a sale for resale exemption.  GRT taxpayers could not do this and instead had to claim the exemption and hope that their counterparty both (A) filed a GRT return with Revenue and (B) claimed the sale as a taxable sale.  If either of these assumptions were wrong, the GRT taxpayer exposed itself to liability upon audit.

The Bulletin

To resolve the issue addressed above, the Bulletin announces a Sale for Resale Acknowledgement Form (“Acknowledgement Form”) that resellers can provide to their counterparties.  A GRT taxpayer that receives a valid Acknowledgement Form can, in the words of the Bulletin, “claim the GRT sales for resale exemption.”  This is a bit misleading, however, since Pennsylvania law does not require an Acknowledgement Form in order to merely claim a sale for resale exemption.  Hopefully Revenue will view receipt of the Acknowledgement Form as not only authorization that a GRT taxpayer is entitled to claim the sale for resale exemption, but also, absent fraud, substantiation that a GRT taxpayer is entitled to receive a sale for resale exemption.

The Acknowledgement Form

 Revenue will automatically provide resellers that report taxable sales and valid sales for resale with an Acknowledgement Form.  The first batch of Acknowledgement Forms will be issued by June 15, 2020.  Each subsequent year Revenue will, in June, issue an updated Acknowledgement Form (assuming the GRT taxpayer is still reporting taxable sales and valid sales for resale).  Sellers that receive an Acknowledgement Form are required to retain a copy thereof in order to support their resale exemption claims.

Effective Date

The Bulletin applies to sales of telecommunications and/or electricity after July 1, 2020.

Issues not Addressed in the Bulletin

While the Bulletin is welcome guidance from Revenue, it does not address:

• The application of GRT and the sale for resale exemption with respect to entities trading, selling and/or buying energy commodities, futures and derivatives;
• The impact of American Electric Power Supply Corporation on municipalities, especially in light of Senate Bill 958 of 2019-2020; and
• The application of GRT and the sale for resale exemption where the sales are associated with the PJM market.

Should you wish to discuss the Bulletin or GRT assessment and refund issues, please reach out to Jeff Kaylor at 717.308.9632 or jkaylor@pillaraught.com.