Pennsylvania has a tax amnesty program that will run from April 21, 2017, to June 19, 2017. Even with many limitations on participation, this program may provide value to eligible taxpayers who have unfiled Pennsylvania tax returns or unpaid Pennsylvania taxes.

Department of Revenue (DOR) materials about the amnesty program, including program guidelines and a sample amnesty return, are available on its website.

Eligibility to Participate

All taxes administered by the DOR—including state and local sales and use taxes, employment tax withholding obligations, and non-Philadelphia realty transfer taxes—for which a taxpayer was delinquent as of December 31, 2015, are eligible for amnesty.

Individuals, businesses, and other entities with state tax delinquencies—including unfiled tax returns or reports, as well as unpaid or under-reported tax liabilities—as of December 31, 2015, are generally eligible to participate in the amnesty program. However, amnesty is not available to taxpayers who participated in Pennsylvania's 2010 tax amnesty program with respect to any tax. Amnesty is not available to taxpayers who are on notice that they are the subject of a criminal investigation or have been named a defendant in a criminal complaint alleging a violation of Pennsylvania tax laws.

Amnesty Benefits

For all eligible taxpayers who enter the amnesty program, the DOR will waive 50% of the interest and all of the penalties that otherwise would be imposed on the delinquent taxes, provided that the taxpayer pays 100% of the delinquent tax.

Additionally, taxpayers that report "unknown" tax liabilities—i.e., liabilities for which no return has been filed, no payment has been made, and the taxpayer has not been contacted by the DOR; or a return has been filed, the tax was underreported, and the taxpayer has not been contacted by the DOR about the under-reported tax—will not be liable for any delinquent taxes of the same type that were due before January 1, 2011.

Participation Procedures

Eligible taxpayers participating in the program must:

  • File an online amnesty return;

  • File complete tax returns for all periods for the tax type the taxpayer is reporting (including for 2015 and 2016, which periods are not eligible for amnesty) or, if returns have been filed underreporting the tax, file amended returns for all such periods;

  • With respect to tax liabilities for which amnesty relief is available to the taxpayer (e.g., liabilities due between January 1, 2011, through December 31, 2015, for taxpayers with unknown liabilities), pay 100% of the tax and half of the interest; and

  • Pay in full the tax liabilities of the tax type for which the taxpayer is participating and for which amnesty is not available (i.e., 2015 and 2016).

Potential Catch-22 for Unknown Taxpayers

The amnesty law created a trap for taxpayers who have never previously filed Pennsylvania tax returns. To comply with the amnesty requirements, taxpayers with unknown liabilities are required to file tax returns for all periods beginning on January 1, 2011 (including returns for the 2015 and 2016 tax years). However, to do so, taxpayers are required to obtain Pennsylvania account numbers and the process of registering for an account would trigger a notice from the DOR. As a result, taxpayers who apply for an account number turn their unknown liabilities into known liabilities and risk losing relief for pre-January 1, 2011, taxes.

To address this issue, the DOR will implement a procedure whereby such a taxpayer can file the amnesty return and comply with the amnesty requirements without first obtaining a DOR account number. Consequently, taxpayers who plan to participate in the amnesty program that have never filed in Pennsylvania should wait until April 21, 2017, and use the special procedure to file an amnesty return. Such a taxpayer should not apply for a DOR account number before entering the amnesty program.

Taxpayers with Deferred Payment Plans

A taxpayer currently making payments under a deferred payment plan may participate in the amnesty program to extinguish the payment plan, but must agree to pay the full remaining tax amount (plus half of the interest on the remaining tax) by June 19, 2017, to be relieved from payment of the other half of the interest and all penalties.

Revocation of Amnesty

If, within two years from the end of the program, unless a valid appeal is pending, a taxpayer becomes delinquent for three consecutive periods for semi-monthly, monthly, quarterly, or other periodic tax liabilities, or becomes eight months or more delinquent for filing or paying any annual tax liabilities, the DOR can collect all of the penalties and interest that were waived pursuant to the amnesty program. Following an unsuccessful appeal, a taxpayer must pay the liabilities within applicable time limits to avoid becoming delinquent and liable for the waived penalties and interest.

At the conclusion of the amnesty period, taxpayers who do not participate will be subject to a 5% non-participation penalty on any eligible tax, penalty, and interest unpaid during the amnesty period. As was true of the 2010 amnesty program, participation in the program will preclude any right to participate in any future amnesty program for any tax.

Coordination with Voluntary Disclosure Program

Unlike the 2010 amnesty program (and many prior programs), the DOR's voluntary disclosure program will remain open during the amnesty program. As described in more detail in the DOR's guidelines (available here), the voluntary disclosure program allows taxpayers who recently became aware of Pennsylvania tax obligations of which the DOR is unaware to voluntarily satisfy such obligations, without having to pay penalties by paying outstanding tax liabilities and interest for the three previous years (non-corporate taxes) or the five previous years (corporate taxes) plus the current year.

For many taxpayers that the DOR is unaware of, the voluntary disclosure program will be more advantageous than amnesty, and taxpayers should weigh their options before participating in amnesty. Additionally, the voluntary disclosure program will remain open for taxpayers that are ineligible to participate in amnesty—e.g., taxpayers who participated in the 2010 amnesty program.

Pennsylvania Sales and Use Tax Ruling No. SUT-17-001

In Sales and Use Tax (SUT) Ruling No. SUT-17-001, the DOR ruled that all "support services" to canned computer software are subject to SUT even when delivered electronically,

Effective August 1, 2016, sales subject to SUT were expanded to include sales of digitally delivered (including streaming) games, music, movies, and apps, among other digital products. The expanded SUT base also includes "maintenance, updates, and support" to taxable digital products. The DOR ruled that these changes made its prior guidance obsolete, concluding that consultation, support, and training services were not subject to SUT. The DOR clarified that, after these changes, all maintenance, updates, and support, including training and consulting, are subject to SUT.

The non-exclusive examples of taxable maintenance, updates, and support listed by the DOR are:

  • A vendor provides support via a remote desktop where it accesses and alters the software directly.

  • A vendor provides telephone support where it troubleshoots/discusses the issue with the customer and subsequently provides a patch or module to fix the issue.

  • A vendor distributes upgrades, patches, and/or modules to its customers.

  • A customer sends a copy of the software program to a vendor who accesses, uses, or alters it and then returns the corrected version of the software.

  • A vendor provides telephone support in the form of a call-in, help- desk providing direction as to the use, correction, or manipulation of the software.

  • A vendor provides training with respect to the use, correction, or manipulation of the software.

Pennsylvania software vendors and users of software in Pennsylvania should be aware of the DOR's broad view of the expansion of the SUT base in the software area.

Attorneys in Ballard Spahr's Tax Group advise clients on compliance with federal and state tax filing requirements.

If you have any questions about these changes and their impact on existing or future transactions or the issues raised by City Council’s apparent concession that Philadelphia real property is not always assessed accurately, please contact Wendi L. Kotzen at or 215.864.8305, or Philip B. Korb at or 215.864.8709.

Copyright © 2017 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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