§ 153.14. Other adjustments.
The following items will be allowed as special deductions in determining Commonwealth taxable income if supported by a detailed schedule:
(1) Special deduction for western hemisphere trade corporations. A deduction will be allowed in the amount of the deduction permitted under sections 921 and 922 of the IRC (26 U.S.C.A. § § 921 and 922).
(2) Contribution adjustments to State taxable income. A taxpayer filing with the Federal government as a member of a consolidated group may be entitled, on a separate company reporting basis, to a larger contribution deduction in arriving at Commonwealth taxable income. Because consolidated reporting is not permitted for Commonwealth purposes, the taxpayer may reflect on a separate company reporting basis the contribution deduction to which it would have been entitled had it filed a separate return with the Federal government.
(3) Special deduction for section 1250 of the IRC (26 U.S.C.A. § 1250) property depreciated on an accelerated depreciation basis when the accelerated depreciation falls below straight line depreciation. This adjustment may be taken in accordance with the following:
(i) A taxpayer depreciating section 1250 of the IRC (26 U.S.C.A. § 1250) property on an accelerated depreciation basis is permitted a special deduction to taxable income to be apportioned when the accelerated depreciation falls below straight line depreciation. The amount of the deduction for a tax year is limited to the amount of depreciation below straight line. The aggregate adjustment to taxable income to be apportioned for amounts below straight line may not exceed the aggregate of the amount added to taxable income to be apportioned in previous tax years.
Example: Taxpayer, a calendar year company, purchases a plant, which is a section 1250 of the IRC property, on January 1, 1976, having a depreciable value of $900,000 and a 20-year useful life. Taxpayer depreciates the property on a double-declining (accelerated) basis. Straight-line depreciation would be $45,000 per year. Taxpayer’s depreciation on its Federal return for 1984 would be $43,047. Taxpayer’s 1984 taxable income to be apportioned on its Commonwealth report would be adjusted by permitting a deduction for the amount of depreciation below straight-line or $1,953 ($45,000 minus $43,047).
(ii) A taxpayer depreciating section 1250 of the IRC property on an accelerated depreciation basis is permitted a special deduction to taxable income to be apportioned when a section 1250 of the IRC property is sold. The Department will permit the taxpayer a special deduction for accelerated depreciation previously included in income to be apportioned in prior years.
Example: Taxpayer purchases a building in 1971 and elects to depreciate the building on an accelerated depreciation basis. The following amounts were included as tax preference items for the years listed:
Year Tax Preference Amount 1971 $10,000 1972 7,500 1973 5,000 1974 2,500 Total $25,000
The building was sold on January 1, 1975. Each of the years listed in this example produced taxable income and the tax preference amounts listed in this example were included in income to be apportioned. The Department will permit the taxpayer a special deduction of $25,000.
(iii) The special deductions described in subparagraphs (i) and (ii) will not be permitted for a tax year when the taxpayer did not have income to be apportioned.
(4) Special deduction for certified pollution control facilities amortized under section 169 of the IRC (26 U.S.C.A. § 169). This adjustment may be taken in accordance with the following:
(i) A taxpayer depreciating a certified pollution control facility under section 169 of the IRC (26 U.S.C.A. § 169) is permitted a special deduction to taxable income to be apportioned when the rapid amortization period expires. The amount of the deduction for a given tax year is limited to the amount of depreciation which the taxpayer would have been allowed under the depreciation method elected under section 167 of the IRC (26 U.S.C.A. § 167) minus a depreciation which the taxpayer has taken for a given tax year. The total special deductions may not exceed the total amount added to taxable income to be apportioned in prior years.
Example: Taxpayer’s, a calendar year company, rapid amortization period of a certified pollution control facility constructed in late December 1971, begins January 1972 and expires December 1976. No other depreciation has been taken and the depreciable value is $1 million and the useful life is 20 years. Straight-line depreciation would be $50,000 per year. Since the useful life is greater than 15 years, taxpayer’s Federal rapid amortization deduction is available only for the portion of the property’s depreciable value attributable to the first 15 years of its useful life or 75% (15/20) of its depreciable value (75% of $1 million or $750,000) over the 60 months rapid amortization period. The remaining 25% of its depreciable value (25% of $1 million or $250,000) is depreciated by the straight-line method over the 20-year useful life period. Taxpayer’s depreciation on its Federal return for 1977 would be $12,500. Taxpayer’s 1977 taxable income to be apportioned on its Commonwealth report would be adjusted by permitting a deduction for the amount of depreciation below straight-line or $37,500 ($50,000 minus $12,500).
(ii) The special deduction described in subparagraph (i) will not be permitted for a tax year when the taxpayer did not have income to be apportioned.
Source The provisions of this § 153.14 amended December 2, 1977, effective December 3, 1977, 7 Pa.B. 3451; amended March 19, 1993, effective March 20, 1993, 23 Pa.B. 1322. Immediately preceding text appears at serial pages (115311) to (115312) and (174431).
Notes of Decisions Depreciation
The taxpayer was not denied the right to use straight line depreciation on its State return since it chose to use accelerated depreciation on its Federal tax return. Roosevelt Arms, Inc. v. Commonwealth, 608 A.2d 648 (Pa. Cmwlth. 1992).
Special Deduction
The taxpayer did not prove that it or its predecessor added back any depreciation in prior years; therefore, having failed to meet its burden, the taxpayer was not entitled to special deductions for its ‘‘Section 1250 property.’’ Eat ’n Park Restaurants Business Trust v. Commonwealth, 803 A.2d 845 (Pa. Cmwlth. 2002); exceptions sustained in part, overruled in part 821 A.2d 160 (Pa. Cmwlth. 2003).
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