As states begin to grapple with the implications of federal tax reform, the Reed Smith State Tax Group will be authoring a series of alerts discussing the state tax impacts of federal tax reform. In the first in the series, we will discuss the Pennsylvania Department of Revenue’s guidance on the application of the new federal 100% bonus depreciation rules in computing Pennsylvania’s corporate net income tax. This guidance appears to be inconsistent with legislative intent and prior Department policy.
On December 22, 2017––the Friday before Christmas––the Pennsylvania Department of Revenue put a huge lump of coal in taxpayers’ stockings—Corporation Tax Bulletin 2017-02. That bulletin announced the Department’s new position regarding 100% bonus depreciation, presumably to address the 100% bonus depreciation deduction that will be allowed under the federal Tax Cuts and Jobs Act for property placed in service after September 27, 2017.1 Reversing its six-year-old policy allowing taxpayers to claim a full 100% bonus depreciation deduction for Pennsylvania purposes, the Department now asserts that taxpayers who take advantage of the 100% bonus deduction for federal purposes must, when computing the Pennsylvania corporate net income tax, add the 100% bonus deduction to income. The bulletin goes on to announce that the Department will not allow any depreciation deduction with respect to property for which the 100% bonus deduction was claimed until such property is disposed of.