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CITY OF PHILADELPHIA BUSINESS PRIVILEGE TAX REGULATIONS - page 38 / 59

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38 / 59

TAX ON NET INCOME

SECTION 401. IRREVOCABLE ELECTION OF "NET INCOME" COMPUTATION METHOD.

  • (1)

    Net income can be computed by either of two methods, at the option of the taxpayer. Except as otherwise provided in this section, the method which is used by a taxpayer to compute the tax based on net income on the first Business Privilege Tax Return filed by that taxpayer, is the method which must be used by that taxpayer in all consecutive succeeding years.

  • (2)

    A taxpayer who has discontinued engaging in business activity in the City of Philadelphia for the period of at least one full tax year (January 1 to December 31) and then recommences engaging in business activity with the City, may elect to use either method of computing net income for the first Business Privilege Tax Return due after recommencing business activity in the City.

SECTION 402. CORPORATIONS PARTICIPATING IN THE FILING OF A CONSOLIDATED RETURN.

In the case of a corporation participating in the filing of a consolidated corporate return to the Federal Government, net income shall mean either:

  • (1)

    The income from any business activity as it would have been properly returned to and ascertained by the Federal Government by that corporation on a separate return, subject to the adjustments to net income provided in this Article, and as allocated and apportioned as provided in this Article; or

  • (2)

    The net income for that corporation as computed under Net Income Method I.

SECTION 403. NET INCOME METHOD I.

Method I Net Income shall be the net gain from the operation of a business, profession or other activity after provision for all allowable expenses actually incurred in the conduct thereof, either paid or accrued in accordance with the accounting system used, without deduction of taxes based on income, and without deduction of fines and penalties, and as allocated and apportioned as provided in this Article and after adjustment for the distributive share of net income or loss received by one partner from a partnership where the receiving partner’s ownership of capital at the end of the year is at least twenty- percent (20%) as reported on Schedule K-1 of Federal Form 1065 of the distributing partnership. The rules and regulations applicable to determining taxable net profits for the Net Profits tax imposed in Chapter 19-1500 of The Philadelphia Code shall be the rules and regulations applicable to determining taxable net income for Net Income Method I.

36

(Rev. 08/01)

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