In the midst of our busy season, we have come across a recurring issue with Pennsylvania RCT-101 Corporate Tax Reports which could lead to a tax due notice for companies with zero apportionment in the state.
In several instances where a return has been filed that has zero business apportionment, Pennsylvania has adjusted the apportionment to indicate 100% Pennsylvania business apportionment. This has occurred if such returns haves been prepared with:
- Zeros for both the numerators and denominators on Form RCT-101 Page 4 of 6 Section D Schedule A-1; or
- Zeros for both the numerators and denominators on Form RCT-101 Page 4 of 6 Section D Schedule C-1; or
- Zeros for both the numerator and denominators on Form RCT-106, Page 2, Table 1, Table 2 or Table 3.
Affected taxpayers, i.e. those who have zero Pennsylvania apportionment with any of the above, have received notices from The Department for additional tax based on the Department’s unilateral adjustment to the Pennsylvania business apportionment that increases the affected return’s Pennsylvania business apportionment to 100%.
In our discussions with the Department, we were unofficially informed that this adjustment from zero Pennsylvania business apportionment to 100% Pennsylvania business apportionment is being triggered as the result of the aforementioned Forms indicating zeros in the factors’ denominators, “Total” or “ Inside and Outside PA” input areas.
It appears that every PA RCT-101 that indicates a zero business apportionment percentage should be reviewed to ensure that the denominators, “Total” and “ Inside and Outside PA” input areas indicate an appropriate positive amount with respect to that entity AND NOT SIMPLY “0”.
Failure to represent the zero business apportionment as indicated above may result in the Department issuing a tax due notice based on 100% Pennsylvania business apportionment.
In our discussions with the Department, we were informally told that to rectify a notice for additional tax based on the above fact pattern the taxpayer may be required to file with the Department a BOARD OF APPEALS PETITION FORM, REV-65 BA within the requisite time set forth in the Department notice for additional tax setting forth why the Department’s assessment is incorrect.
This form may also be submitted electronically to the Department. In order to submit this Form on line, please see the Department’s Board of Appeals Online Petition Center webpage. This online process is very effective in that the State sends a confirmation with the appropriate time stamp within one day of submission.
Slow And Steady Wins The Compliance Race
As an avid auto racing fan, I often hear winning race car drivers during their victory interviews say that they found that “slow and steady wins the race” and that slowing down at certain points on the race track actually resulted in their fastest laps. Their advice may be applicable and valuable in preparing Pennsylvania corporate returns with zero business apportionment – slow down and complete your apportionment input to avoid potentially costly notices and petitions for appeal.