I. Legislative Update
a. Beginning with taxable years that open on or after January 1, 2026, the Pennsylvania corporate net income tax will drop to 7.49 percent—down from 7.99 percent for 2025—and will continue to fall each year until it settles at 4.99 percent for tax years starting on or after January 1, 2031. The phasedown was enacted through the 2022 amendments to 72 Pa. Stat. § 7402(b) (H.B. 1342) and became effective for taxable periods commencing January 1, 2023.
b. Lawmakers in Harrisburg are actively debating whether to scrap Pennsylvania’s personal income tax altogether. Companion bills—Senate Bill 206 and House Bill 1742—would repeal the tax on individuals, estates, and trusts beginning in 2026, while also eliminating employer withholding and the associated filing requirements. Should either bill pass, Pennsylvania would join the nine states that impose no individual income tax.
c. Medical‐cannabis dispensaries finally received state‐level tax relief this fall. Under Senate Bill 1501, signed by Governor Josh Shapiro, dispensaries may deduct ordinary and necessary business expenses such as rent, payroll, and utilities on their Pennsylvania returns, effective October 29, 2024. The Commonwealth achieved this by uncoupling from Internal Revenue Code § 280E, which still bars those deductions at the federal level.
d. Net‐operating‐loss relief is also on the way. Senate Bill 654, signed July 11, 2024, boosts the NOL carryforward limitation by ten percentage points each year, allowing taxpayers to offset 50 percent of state net income in 2026, climbing to 80 percent by 2029. NOLs generated before January 1, 2025 remain subject to the 40 percent cap
e. Philadelphia is tightening two long‐standing local exemptions. The $100,000 Business Income and Receipts Tax (BIRT) exclusion will expire after the 2024 tax year, and the $2,000 annual Use & Occupancy (U&O) Tax exemption disappears for liabilities incurred after December 31, 2025. The first U&O payment without the exemption is due January 25, 2026.Select Administrative and Case Updates
II. Select Administrative and Judicial Developments
a. Zilka v. City of Philadelphia Tax Review Board. In January, the U.S. Supreme Court declined to review a Philadelphia taxpayer’s claim that the city’s wage tax regime double-taxes income earned in Delaware and violates the dormant Commerce Clause. The denial leaves intact the Pennsylvania Supreme Court’s decision upholding the city’s partial credit system.
b. In an early 2025 opinion, the Pennsylvania Commonwealth Court ruled that the state’s gross receipts tax extends to non-voice private-line services. The court rejected the taxpayer’s position that such services were outside the scope of “telephone-related” activity. Relying on prior Pennsylvania Supreme Court precedent, the court emphasized that the gross receipts tax reaches all technologies that transmit messages unless the legislature expressly provides an exclusion.
c. In a decision issued in November 2024, the Pennsylvania Supreme Court held that its earlier ruling in Nextel Communications of the Mid-Atlantic, Inc. v. Commonwealth, 171 A.3d 682 (Pa. 2017), which invalidated the state’s cap on NOL carryforwards, applies only on a prospective basis and ruled against a retroactive application of a net operating loss cap. The Pennsylvania Supreme Court reversed the Commonwealth Court and found that its prior decision in a similar case was wrongly decided. As a result, the Court limited its landmark Nextel ruling to prospective application only and held that due process does not require the Commonwealth to refund corporate net income tax paid. Looking to the U.S. Supreme Court’s Chevron Oil factors, the court emphasized concerns about fairness and the need to protect fiscal stability as reasons for limiting the reach of its prior decision.
d. National Hockey League v. City of Pittsburgh. The Supreme Court of Pennsylvania heard argument on April 10 in the high-profile challenge to Pittsburgh’s 3 percent “jock tax” on the income of nonresident athletes and entertainers who use city-owned venues. A trial court invalidated the levy in 2022, and that ruling was affirmed on appeal. The Supreme Court signaled it needs additional briefing before deciding whether the tax exceeds municipal authority or survives as a permissible revenue measure. Although the fee yields only about $6 million of the city’s $785 million budget, the case could have far-reaching implications for similar taxes nationwide.
e. Mission Funding Beta Co. v. Commonwealth, No. 411 F.R. 2019 (Pa. Commw. Ct. Aug. 14, 2025). The Commonwealth Court clarified that when a corporate refund stems from an IRS adjustment to taxable income, the special statute of limitations in 72 Pa. Stat. § 10003.5(b) governs—not the general three-year period. The court reversed administrative findings that the claim was untimely and remanded for a determination of “taxable income” consistent with the federal adjustment.
