The Pennsylvania Department of Revenue has proposed new regulations intended to clarify how multistate businesses should source income from the sale of services for Corporate Net Income Tax purposes, providing guidance that businesses have sought since the state adopted market-based sourcing in 2013.

The new regulations, which have been submitted to legislative committees and the Independent Regulatory Review Commission (IRRC), establish explicit guidelines for sourcing revenue from the sale of services.

The rules determine whether service revenue is attributable to Pennsylvania based on where the customer receives the benefit of the service, rather than where the work is performed, and include industry-specific examples to promote consistent application across a range of businesses.

While Pennsylvania shifted to a market-based sourcing system more than a decade ago, businesses and tax practitioners have long argued that the absence of detailed regulations created uncertainty and inconsistent administration. The proposal follows a 2023 Pennsylvania Supreme Court decision that upheld the Department of Revenue’s approach to apportioning corporate income, but stakeholders continued to press for formal guidance.

The rulemaking is expected to provide greater certainty for companies operating in multiple states by establishing uniform standards for sourcing service revenue. The proposal will move through Pennsylvania’s regulatory review process before it can be finalized. Businesses and other stakeholders may submit public comments through Aug. 24. The PA Chamber’s Tax Policy Council is currently reviewing the regulation for potential comments.

To review the proposal, track updates, or submit comments, please visit the Independent Regulatory Review Commission’s website.