Pennsylvania Issues Corporate Income Tax Guidance on Sourcing of Sales from Intangibles

February 28, 2024

By: Betsy Goldstein, SALT Senior Manager

At a glance

  • The main takeaway: Pennsylvania issued a corporate income tax bulletin that provides guidance and examples related to legislation enacted in 2022 that revised the state’s sourcing rules for revenues from intangible assets effective for the 2023 tax year.   
  • Assess the impact: State apportionment and sourcing rules can have a significant impact on a businesses’ income that is taxed in each state. 
  • Take the next step: Aprio’s State and Local Tax (SALT) team can assist your business with understanding how these rules apply to regular and significant one-time business transactions.  

Schedule a free consultation today to learn more!

The full story:

State apportionment can be very complicated, especially if you are generating business revenues from intangibles or other specialized revenue streams. Sometimes, state guidance is limited or just not very helpful.

In 2022, Pennsylvania enacted Act. No. 53 (HB1342), which revised the corporate income tax apportionment sourcing rules for sales from intangible assets. The new rules took effect for tax years beginning after December 31, 2022. Under the old rules, the state applied a cost-of-performance sourcing methodology to sales from intangible assets.1  

Unpacking the new law

The new law established eight rules for specific types of intangibles, most of which generally apply a market-based sourcing approach.2 On January 5, 2024, the Pennsylvania Department of Revenue issued Corporation Tax Bulletin 2024-01 (“CTB 2024-01”), which provides additional guidance and examples for applying these new intangible sourcing rules. 

For receipts from the sale of intangible property representing certain contracts rights or licenses, the statute now states: 

Gross receipts from the sale of intangible property where the property sold is a contract right, government license or similar property that authorizes the holder to conduct a business activity in a specific geographic area, if and to the extent the property is used in or otherwise associated with this State.3

CTB 2024-01 provides these illustrative examples: 

Example 1: Baker Corp., located in Pennsylvania, pays Gourmet Corp., located in Virginia, for the exclusive right to be the official baker and distributor of Gourmet Corp.’s breads in Central Pennsylvania. Gourmet Corp. sources 100% of the receipts from the sale of this contract right to Baker Corp. to Pennsylvania because the right was solely used in this State. 

Example 2: Wireless Corp. purchases from Spectrum Corp. a license entitling it to use a defined set of frequencies and exclusive use of applicable radio spectrum in well-defined geographic areas in order to transmit data between its various cell towers and a subscriber’s handset. Spectrum Corp. earned a $10 million fee for the license from Wireless Corp. 30% of the geographic license covers locations within Pennsylvania while 50% of Wireless Corp.’s subscriber’s billing addresses that receive their services through that geographic spectrum license are located in Pennsylvania. Because 50% of the use of the license occurred in Pennsylvania by Wireless Corp. in providing data to its subscribers’ handsets, 50% of the licensing fee should be sourced to Pennsylvania. 

While example 1 is straightforward, example 2 focuses in on the users in the state and not just the geographic area covered. 

The new statutory language also includes sections relating to gross receipts from the lease and license of intangible property, gross receipts from the sale, redemption, maturity, or exchange of securities, as well as receipts from certain types of lending activities and interest. Finally, the state provides that: 

Gross receipts received from intangible property, not otherwise described in this paragraph, shall be excluded from the numerator and denominator of the sales factor.4

The bottom line

A question we are often asked by clients selling their business or a portion of their business, is how to apportion receipts from sale of goodwill. The commentary in CTB 2024-01 notes that the Department interprets the above provision to apply to receipts from the sale of goodwill. Therefore, if you sold your business and had a large portion of the purchase price allocated to the sale of goodwill, these receipts would likely be excluded from the numerator and denominator of the sales factor in Pennsylvania.

State apportionment and sourcing rules have a significant impact on the income that is taxed in each state. Aprio’s SALT team has experience helping businesses understand how these rules may apply to their regular business transactions and to significant one-time transactions, such as a sale of the business. We can assist your business by identifying potential opportunities to structure your business transactions in a manner that may minimize your multi-state income tax liabilities. We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.   


1 Former Penn. Stat. Ann. § 7401(3)2.(a)(17)(A)&(B) provided as follows: Sales, other than sales of TPP and sales of services are sourced to this state if (A) either the income-producing activity is performed in this state OR (B) the income-producing activity is performed both in and outside this state and a greater proportion of the income-producing activity is performed in this than any other state, based on costs-of-performance.

2 Penn. Stat. Ann. § 7401(3)2.(a)(17)(C)-(K).

3 Penn. Stat. Ann. § 7401(3)2.(a)(17)(D).

4 Penn. Stat. Ann. § 7401(3)2.(a)(17)(K).


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