Amendments to the Philadelphia business privilege and income tax regulations were adopted on Dec. 15, 2008 that provide for an exclusion from the scope of those taxes for certain investment companies investing in cash and securities. For instance, Section 101 of the business privilege tax regulations is revised to provide that the term “business” – for purposes of the imposition of such tax – shall not include the following:
"(9) The activities of a pool of cash and/or securities which pool is governed by Sections 3(a), 3(c)(1), 3(c)(5)(C), 3(c)(7), 3(c)(9), 3(c)(10), 3(c)(11) or 3(c)(14) of the Investment Company Act of 1940, as in effect t on Oct. 6, 2008. Any investment vehicle that earns income from activities other than those governed by the above sections of the Investment Company Act of 1940 shall be deemed engaged in business within Philadelphia only to the extent of its activities not involving the activities governed by the above sections of the Investment Company Act of 1940.” Similar language is included in Section 101 of the Philadelphia income tax regulations.
Similar language is included in Section 101 of the Philadelphia income tax regulations.
Based on discussions with City officials, the intent of the regulations is to exclude from Philadelphia business taxes mutual funds and most investment partnerships. No effective date is specified, which suggests that the regulations may be effective for 2008. No transitional rules appear to have been issued.
We are informally pursuing further clarification of the scope and impact of the regulations. Please contact Zach Alexander or any other member of the Tax Practice Group if you would like additional information.
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