PA Updates Limitation Statutes on Tax Exemptions, Liabilities

In an unusual move, the Pennsylvania legislature passed a mid-year tax bill. The Act includes the 10-year statute of limitations for the Pennsylvania Department of Revenue (PDR) to collect outstanding liabilities, a sales tax exemption for a financial institution's purchase of software, a requirement for banks to participate in the Financial Information Data Match (FIDM) for outstanding tax liabilities, and an extension of the criminal tax statute of limitations.

Effective January 1, 2021, the PDR will have 10 years to collect outstanding liabilities. This ten-year statute of limitations is effective for tax liens filed after January 1, 2021. The Department has until 2031 to collect on liens filed prior to 2021. The statute will not include a liability under appeal. The statute also does not apply in the following situations:

  • The failure to remit trust fund taxes (i.e. sales and employer withholding)
  • The filing of a false or fraudulent tax return
  • Willfully failing to file a return or report as required by law
  • Attempting to evade or defeat a tax
  • Not paying liabilities related to criminal convictions
  • An instance of inheritance tax
  • Unknown liabilities that have not been extinguished prior to the commencement of a subsequently enacted or approved tax amnesty program

    Beginning November 27, 2019, purchases of canned computer software used directly for conducting the business of banking will be exempt from sales and use tax. The exemption applies to financial institutions that are subject to the Bank and Trust Company Shares Tax or the Mutual Thrift Institutions Tax. The term “directly utilized in conducting the business of banking” is defined to include a financial institution’s purchase of canned computer software to be used in transactions with customers and service providers. It does not include the purchase of canned computer software by entities other than financial institutions such as holding companies or financial institution subsidiaries.

    The Act also requires financial institutions to participate in the FIDM program for unpaid tax liabilities. On a quarterly basis, financial institutions must make a reasonable effort to provide the PDR with any asset information an obligator may have. This program is similar to the program financial institutions participate in related to uncollected child support payments. Pennsylvania joins a growing number of states that require participation in the collection of outstanding tax liabilities.

    Effective November 27, 2019, a three-year statute of limitations was applied to criminal tax prosecutions. However, an offense provided for under Title 18 Pa.C.S. (crimes and offenses), relating to misconduct under the tax statutes must be prosecuted within five years after the commission of the offense. In addition to any fine and/or imprisonment, the PDR will be entitled to restitution from any taxpayer convicted under the criminal provisions.

    For questions, please contact HBK's State and Local Tax leader and Tax Advisory Group member, Suzanne Leighton, CPA, MST at SLeighton@hbkcpa.com.

  • About the Author(s)
    Suzanne Leighton is a Senior Manager in the Pittsburgh, Pennsylvania office of HBK. She began her career in 1990 spending 14 years in public accounting followed by 14 years in government. Sue has extensive experience in state taxation and pass through entities. While working at the PA Department of Revenue, she was the Director of the Pass-Through Business Office for 11 years prior to being promoted to Deputy Secretary for Compliance and Collections. She is a member of the HBK’s Tax Advisory Group.
    Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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