Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
943044
XXXXXXXXXX David R. Senécal
Attention: XXXXXXXXXX
July 10, 1995
Dear Sirs:
Re: Pennsylvania Taxes Levied on Non-resident Transport Companies
This is in reply to your facsimile of November 24, 1994, wherein you request our opinion as to the deductibility of certain taxes levied on your company by the Commonwealth of Pennsylvania ("Pennsylvania"). We apologize for the delay in responding to your enquiry.
On the basis of information supplied to us by the PA Department of Revenue, it would appear that Canadian trucking companies, which are considered to be carrying on business in Pennsylvania, are liable to that state's Corporate Net Income Tax, Franchise Tax, and Gross Receipts Tax.
Corporate Net Income Tax
The Net Corporate Income Tax is imposed on the taxable net income of domestic and foreign (ie, out of state) corporations for the privilege of doing business, carrying on activities, having capital employed or used or owning property in Pennsylvania. Special apportionment rules exist for corporations which do not transact their entire business in that state.
In the case of truck companies, the income is apportioned on the basis of total revenue miles within Pennsylvania during the taxable period over the total revenue miles everywhere during that period. A "revenue mile" is defined as being the average receipts derived from the transportation by the taxpayer of persons or property one mile.
It is our opinion that this particular tax is an "income or profits tax" for the purposes of paragraph 126(7)(a) of the Income Tax Act (the "Act"). Consequently, your company may claim a foreign tax credit with respect to such taxes which are paid to Pennsylvania.
Franchise Tax
The Franchise Tax is imposed upon the exercise of the corporate franchise in Pennsylvania by a foreign (out of state) entity. It is levied in lieu of the Capital Stock Tax which is imposed on domestic corporations. However, the measure by which the tax is determined is based on a fixed formula called the Capital Stock Value and which applies for the purposes of both the Franchise Tax and the Capital Stock Tax.
The Capital Stock Value is defined as being the product of one-half times the sum of the average net income capitalized at the rate of 9.5% plus 75% of the net worth from which product shall be subtracted US$50,000. Average Net Income is the sum of the net income or loss for each of the current and immediately preceding four years divided by five. Net Worth is the sum of the entity's issued and outstanding capital stock, surplus and undivided profits set forth on the books for the close of the taxable year. In no case shall the Net Worth be less than zero.
The same special apportionment rules described above for purposes of the Corporate Net Income Tax apply in the case of the Franchise Tax. The Franchise tax rate is 1.275% with a minimum tax of US$300 per taxable period.
In our view, the Franchise Tax is not an "income or profits tax" for the purposes of paragraph 126(7)(a) of the Act and is, therefore, not creditable. However, any Franchise Tax paid would be deductible pursuant to paragraph 18(1)(a) of the Act as being an outlay or expense incurred for the purpose of gaining or producing income from business or property.
Gross Receipts Tax
The Gross Receipts Tax is an excise tax for the use of highways in Pennsylvania. It is based on the gross receipts for the tax period from all Pennsylvania-connected operations of an operator engaged in the business of carrying passengers or property for hire.
The rate of tax is eight mills upon the gross receipts apportioned to Pennsylvania. The apportionment is based on the ratio that the number of miles operated in Pennsylvania during the period bears to the total number of miles operated everywhere. A tax credit is allowed for similar excise taxes paid to cities in Pennsylvania as well as to certain other states and for certain motor vehicle registration fees.
Our position with respect to the Gross Receipts Tax is the same as that with respect to the Franchise Tax.
We trust that our comments will be of assistance to you.
Yours truly,
for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1995
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1995
Email this Content