Legal Alert

Pennsylvania Cuts Corporate Income Tax Rates, Makes Other Significant Tax Changes

by Wendi L. Kotzen and Christopher A. Jones
July 19, 2022

Pennsylvania’s budget season just ended and Act 53 of 2022 (Act 53), made many significant changes to the Commonwealth’s business and individual taxes.

Corporate Net Income Tax Changes

CNIT Rate Phase-Down

Act 53 provides for a phase down of the Corporate Net Income Tax(CNIT) rate from the current rate of 9.99 percent to 4.99 percent pursuant to the following schedule:

Tax Year Ending


Through December 31, 2022


January 1, 2023 through December 31, 2023


January 1, 2024 through December 31, 2024


January 1, 2025 through December 31, 2025


January 1, 2026 through December 31, 2026


January 1, 2027 through December 31, 2027


January 1, 2028 through December 31, 2028


January 1, 2029 through December 31, 2029


January 1, 2030 through December 31, 2030


January 1, 2031 and thereafter


Adoption of Market-Based Sourcing for Sales of Intangibles

Effective January 1, 2023, Act 53 eliminates sourcing using the cost of performance method for sourcing receipts from the sale of intangibles and instead adopts market-based sourcing for all sales.

Pennsylvania uses a single sales factor to apportion CNIT income. Since 2014, receipts from the sale of services by CNIT taxpayers (like sales of tangible personal property) have been apportioned using market-based sourcing. That is, receipts from the sale of services are includable in the numerator of a CNIT taxpayer’s sales factor if the benefit of the services is derived in Pennsylvania. However, sales of non-service intangibles were sourced to Pennsylvania based on the “cost of performance”–i.e., receipts from sales of intangibles are includable in the sales factor numerator if a greater proportion of the income-producing activity related to the intangible is performed in Pennsylvania than in any other state. Therefore, items such as receipts from patents, royalties, franchise agreements, sale or exchange of securities, and interest were sourced using a different methodology than sales from services and sales of tangible goods.

Act 53 adopts a uniform sourcing rule for all gross receipts by implementing market-based sourcing for receipts from intangibles beginning in tax years beginning on or after January 1, 2023.

Codification of Economic Nexus

Effective January 1, 2023, Act 53 also formally adopts economic nexus for CNIT purposes. Notwithstanding that there was no statutory provision imposing CNIT on taxpayers with no physical presence in the Commonwealth, in 2019, the Department of Revenue (the Department) announced that, effective for tax years beginning on or after January 1, 2020, a corporate taxpayer with $500,000 or more of gross receipts from certain Pennsylvania sources has nexus for CNIT purposes, even without a physical presence in Pennsylvania.

Act 53 makes economic nexus the law in Pennsylvania by including a rebuttable presumption that a corporation with $500,000 or more of sales sourced to Pennsylvania has substantial nexus and is subject to CNIT in the Commonwealth without regard to physical presence in the state.

The determination of whether a taxpayer has $500,000 of sales sourced to Pennsylvania is made using the market-sourcing rules and amended by Act 53. Accordingly, all gross receipts from (i) sales of tangible personal property, (ii) services, and (iii) intangibles count toward the $500,000 if made to a Pennsylvania customer.

Among other consequences, this means that a lender with no physical presence in Pennsylvania will have CNIT nexus if it earns $500,000 or more of interest, fees, or penalties from borrowers in Pennsylvania. Note, however, that Act 53 carves out interest from loans made to affiliated entities from Pennsylvania-source income. Interest paid by a CNIT taxpayer to an affiliated entity may be disallowed under rules in place since 2014 that restrict the deductibility of certain intangible expenses and costs paid to an affiliate. But such interest will not cause the affiliated lender to have nexus with Pennsylvania.

Personal Income Tax (PIT) Changes

For tax years beginning January 1, 2023, some good news for Personal Income Tax (PIT) taxpayers: for the last five years or so (despite issuing a notice to the contrary), the Department of Revenue has taken the position that for PIT purposes, a taxpayer cannot defer gain by doing a like-kind exchange under Section 1031 of the Internal Revenue Code (IRC). In Pearlstein v. Commonwealth, a panel of the Commonwealth Court agreed with the Department and that decision is being appealed.

For tax years beginning in 2023, Act 53 resolves this issue by providing that gain deferred in a like-kind exchange under IRC 1031 also will be deferred for PIT purposes. Similarly, pursuant to Act 53, exchanges of insurance policies that are not subject to tax under Section 1035 of the IRC will not be subject to PIT in tax years beginning on or after January 1, 2023.

Sales and Use Tax Changes

Act 53 adopts sales and use tax rules for “peer-to-peer” car sharing facilitators (essentially, websites/apps that act like Airbnb, but for vehicles) to ensure that sales and use tax is collected on shared vehicle rentals. Act 53 treats peer-to-peer car sharing facilitators (such as Turo and Getaround) as marketplace facilitators like Amazon and eBay and makes such facilitators liable for the collection of sales and use tax on behalf of its platform participants when the facilitator facilitates a vehicle rental transaction in Pennsylvania.

Changes to Credit and Incentive Programs

Act 53 also made changes to many existing credit and incentives programs and added some additional incentives, including the following:

  • Airport Development Zones: Act 53 allows airports to submit plans for an “Airport Development Zone” of up to 2,000 acres to accelerate development activity on land and in vacant buildings owned by airports. Upon approval by the Department of Community and Economic Development (DCED), employers in an Airport Development Zone may earn a tax credit of up to $2,100 for each full-time employee in the Zone. The credit can be used against CNIT, PIT, bank and trust company shares tax, title insurance company shares tax, and mutual thrift institutions tax.
  • Keystone Opportunity Zones: Act 53 extends certain Keystone Opportunity Zone (KOZ) benefits to affiliates of entities that are certified as qualified businesses by DCED. Specifically, the KOZ law allows businesses that meet certain job creation and/or capital improvement metrics to apply to DCED for a 10-year extension of the KOZ term. Under Act 53, if a qualified business in a KOZ receives such a 10-year extension for job creation in a KOZ, the business’ affiliates located in the KOZ also get the extended benefits and the extension will remain in effect for such an affiliate even if the original applicant leaves the KOZ.
  • Film Tax Credit: Act 53 adds to the Film Tax Credit rules new provisions for a “Pennsylvania film producer”–a film company that is domiciled in Pennsylvania. The Film Tax Credit cap is increased (beginning with the 2022-23 fiscal year) to $100 million (from $70 million), with $5 million reserved for Pennsylvania film companies.
  • Other Tax Credit Cap Increases: Act 53 increased the tax credit caps for the following programs, beginning with the 2022-23 fiscal year:
    • Research and Development Tax Credit: From $55 million to $60 million.
    • Entertainment Enhancement Program Tax Credit: From $8 million to $24 million.
    • Waterfront Development Tax Credit: From $3.5 million to $5 million.

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For questions about the changes to the Pennsylvania taxes, please contact Wendi L. Kotzen ( or Christopher A. Jones ( 

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