The Pennsylvania Commonwealth Court issued its much-anticipated decision on July 24 in Synthes USA HQ Inc. v. Commonwealth of Pennsylvania.

  • The Court upheld the Department of Revenue’s position that under the State’s pre-2014 costs-of-performance (COP) statute, service providers were required to apportion their receipts based on where customers received the benefit of the services, rather than where the costs of performing the service were incurred.
  • In so holding, the court rejected the Attorney General’s position that the Department’s benefits-received interpretation was incorrect and ordered the Department to issue a refund to the taxpayer.
  • Although the Pennsylvania legislature amended the COP statute to expressly require a benefits-received sourcing methodology effective with the 2014 tax year, this decision has implications for service providers that have open years prior to 2014 or businesses with certain other receipts, such as receipts from licensing intangibles, that continue to be sourced in accordance with the pre-2014 COP statute.

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