The Pennsylvania Department of Revenue (DOR) issued proposed regulations addressing how corporations source receipts from the sale of services for purposes of calculating Pennsylvania corporate net income tax (CNIT).
In 2013, the Pennsylvania General Assembly enacted legislation (Act 52 of 2013) to source sales of services using a market-based approach. The DOR later issued Information Notice Corporation Taxes 2014-01 to provide administrative guidance.
Proposed Regulation #15-464 would establish rules for sourcing service receipts to Pennsylvania and codify the DOR’s existing guidance and methodology following the Pennsylvania Supreme Court’s 2023 decision in Synthes USA HQ Inc. v. Commonwealth. The proposal is intended to provide greater consistency and certainty for corporations with multistate operations.
On Aug. 24, the PICPA submitted comments developed by its State Taxation Steering Committee. While supporting the DOR’s effort to provide formal guidance, the PICPA expressed significant concerns with the proposal as currently drafted. We noted that the regulation is complex, contains numerous undefined or ambiguous terms, and, in several areas, could extend beyond the sourcing framework established by the General Assembly.
Among its principal concerns, the PICPA urged the DOR to consider the following:
• Ensure the regulation conforms to Pennsylvania’s CNIT statute, rather than relying on provisions of the Multistate Tax Commission’s model regulation that may not be consistent with Pennsylvania law.
• Define key terms, including “service,” “delivered,” and “location,” to provide taxpayers with greater certainty.
• Limit the use of “look-through” sourcing, particularly in situations involving a customer’s customers, and provide clearer guidance for determining the actual recipient of a service.
• Provide more practical guidance for services used in modern business models, including software as a service (SaaS), cloud computing, AI-enabled services, subscription services, and other electronically delivered services.
• Provide greater certainty around reasonable approximation, including clear standards and a safe harbor for taxpayers that consistently use reasonable sourcing methodologies.
• Reduce documentation and compliance burdens, including the allowance of statistical sampling for large volumes of transactions where appropriate rather than requiring transaction-level records.
• Limit the DOR’s discretion to substitute its own sourcing methodology and require the department to demonstrate that a taxpayer’s reasonable methodology does not accurately reflect its Pennsylvania activity before making an adjustment.
The PICPA emphasized that a well-drafted regulation could provide meaningful certainty for taxpayers, practitioners, and the DOR. However, we urged the department to substantially revise the proposal before moving to final-form rulemaking.
The proposed regulation would affect corporations that apportion income for CNIT purposes, a group that includes about 58,000 filers, according to recent DOR data.
IRRC Comments Mirror PICPA Concerns
On Sept. 23, 2026, the Independent Regulatory Review Commission (IRRC) issued its comments on the proposal. While the IRRC does not name individual commenters, many of the issues it raised mirror those in the PICPA’s comments. The commission noted numerous areas where stakeholders found the proposal inconsistent with Act 52 or unclear. Among them, the IRRC said the DOR should do the following:
• Define key terms, including “service,” “delivered,” “tangible personal property,” “intangible personal property,” and “total value.”
• Remove the “look-through” rule from the final-form regulation, because Act 52 does not support its use.
• Clarify the rules for determining where a service is delivered and add examples showing how and when transactions are taxed.
• Address provisions for certain industries, markets, and business models that lack clarity and are inconsistent with Act 52.
• Reconsider reasonable approximation rules that are inconsistent with Act 52 or, if they remain, provide additional guidance.
• Account for the documentation and compliance costs of the record-keeping requirements, which are not reflected in the DOR’s regulatory analysis.
• Clarify the requirements for changes in sourcing methodology, as commenters questioned the DOR’s statutory authority to impose them.
The IRRC also cited letters from Rep. Keith Greiner, CPA, minority chair of the House Finance Committee, and Sen. Scott Hutchinson, majority chair of the Senate Finance Committee, urging the DOR to address the business community’s concerns. Agreeing with Hutchinson, the IRRC said that where additional statutory authority is needed, the DOR should present those policy decisions to the General Assembly.
The IRRC asked the DOR to either amend the regulation to be consistent with the statute or explain in the final-form preamble why it already is. It also recommended moving the regulation’s 21 examples into a separate guidance document that the DOR can update over time.
The DOR has until Aug. 28, 2028, to issue final regulations, and it must respond to the IRRC’s comments and all other public comments when it does.
We will continue to engage with the DOR as the proposal moves through the regulatory review process, and we will keep members informed of significant developments.
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