The City of Allentown is revising its Business Privilege Tax (BPT) regulations based on guidance from legislative acts and court decisions rendered since April 1996, which was when the last revisions were made.
The revisions will take effect and will apply to all business transactions ensuing in the city on January 1, 2021, and thereafter.
In South Dakota v. Wayfair (June 21, 2018), the U.S. Supreme Court overturned the long-standing physical presence nexus standard, establishing that physical presence is not necessary to create constitutional nexus.
Nexus is defined in the Allentown Business Privilege Tax regulations as the legal force which connects the activities of a person, business entity or taxpayer with the taxing authority of the City.
The revisions will not affect most businesses located in Allentown not regularly engaged in interstate commerce.
The revisions neither create a new tax nor establish a new subject of taxation, rather they provide an updated set of rules and filing guidelines for subjects of taxation that had been previously restricted by Supreme Court rulings.
In accordance with Act 42 of 2014, the city’s Business Privilege Tax is levied on the privilege of doing business when exercised by conducting transactions in the city.
Regardless of whether it maintains or maintained a base of operations, branch or sales department within the city, a business, person or taxpayer has exercised the privilege of doing business in the city if it transacted business or facilitated the transaction of business physically within the city’s territorial borders for all or part of thirty (30) or more calendar days within the calendar year. The thirty (30) day standard for physical presence is double that which is required by Pennsylvania law.
Effective January 1, 2021, and thereafter, a business, person or taxpayer with no physical presence in the city is considered to have an economic nexus in the city and, as such, is subject to Business Privilege Tax if it has generated at least fifteen (15) or more transactions to points within the city totaling at least $500,000 in gross volume or greater within the calendar year, and has sufficient connection to the city to establish nexus under the United States Constitution.
Persons, taxpayers and businesses using motor vehicles, such as passenger vehicles, vans and trucks, to receive or deliver, or to pick up or drop-off perishable or non-perishable goods, supplies, wares or assets or passengers for gain or profit for all or a part of thirty (30) days within the tax year have exercised the sufficient privilege of doing business to create physical nexus according to these regulations, except that this subsection shall not apply to commercial motor vehicles merely passing through the city’s streets, creating neither a point of origin nor termination for a transaction.
The gains resulting from the sale of capital assets, personal property and real property are considered gross volume, subject to the Business Privilege Tax, as long as the activity or chain of activities including the acquisition, management and disposition of the property resulting in the gain meets either the transactional or functional test and the property was located in the city at the time of the sale.
The transactional test is defined as the subjective determination as to whether the gain on the sale of an asset or any other gross receipt is business income, in consideration of whether the acquisition and disposition of the property arose from the taxpayer’s primary or regular trade or course of business.
The functional test is defined as the subjective determination as to whether the gain on the sale of an asset or any other gross receipt is business income, in consideration of whether the acquisition and disposition of the property arose from integral functions of the taxpayer’s regular trade or course of business other than the taxpayer’s primary or regular course of business or trade.
There is no revision to the city’s Business Privilege Tax rates.
- On Wholesale transactions, the rate shall be one mill, or one dollar ($1.00) per thousand dollars ($1,000.00) of gross volume of business.
- On Retail transactions, the rate shall be one and one-half (1½) mills, or one dollar and fifty cents ($1.50) per thousand dollars ($1,000.00) of gross volume of business.
- On Service transactions, the rate shall be three mills, or three dollars ($3.00) per thousand dollars ($1,000.00) of gross volume of business.
- On Rental transactions. On receipts attributable to rental transactions, the rate shall be three mills, or three dollars ($3.00) per thousand dollars ($1,000.00) of gross volume of business.
Business Privilege Tax returns must be filed with the city annually.
Allentown joins Philadelphia as the only two Pennsylvania municipalities to use an economic nexus standard for select city taxes. In Philadelphia, the standard applies to the city’s Gross Receipts Tax.
The Business Privilege Tax Regulations for Allentown can be found on the CITY’S WEBSITE.