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CITY OF PHILADELPHIA BUSINESS PRIVILEGE TAX REGULATIONS - page 40 / 59

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(c)

The above referenced items are not to be construed as an all inclusive list. The tax base is the actual earnings of the business without recognition of Federal characterizations which are commonly referred to as pass through items.

(d)

All businesses must allocate non-business income after making the prescribed adjustments to net income.

Adjustments to Net Income. The following adjustments are applicable only to the computation of net income under Method II, and may not be used in computing net income under Method I. These adjustments shall be deducted or added in the order provided hereunder, and shall be computed based on receipts and deductions reflected in the computation of taxable income as properly returned to and ascertained by the Federal Government. If the Amount of any of the adjustments in subsections (2)(a) through (2)(g) is less than zero, the taxpayer shall add that amount to the adjusted net income remaining after making the preceding adjustments (increase net income), or shall deduct that amount from the adjusted net loss remaining after making the preceding adjustments (reduce the net loss), as the case may be. If the amount of any of the adjustments in subsections (2)(a) through (2)(g) is more than zero, the taxpayer shall deduct that amount from the adjusted net income remaining after making the preceding adjustments (decrease net income), or shall add that amount to the adjusted net loss remaining after making the preceding adjustments (increase net loss), as the case may be.

(a)

A taxpayer shall reduce net income or increase net loss by the amount of interest and dividends earned on and the net gains from the transfer of all direct obligations of the United States Government, Pennsylvania and its political subdivisions, including stocks, bonds and Treasury notes and other direct obligations of the United States Government or Pennsylvania and its political subdivisions, and a taxpayer shall increase net income or reduce net losses by the amount of any net losses from the transfer of all direct obligations of the United States Government or Pennsylvania and its political subdivisions, including stocks, bonds and Treasury notes and other direct obligations of the United States Government or Pennsylvania and its political subdivisions.

(b)

A taxpayer shall increase net income or reduce net loss by the amount of any interest expense attributable to direct obligations of the United States Government, Pennsylvania and their political subdivisions, including stocks, bonds, Treasury notes and other direct obligations of the United States Government, Pennsylvania and their political subdivisions, the income from which is exempt from taxation of income under the laws of the United States or of the Commonwealth of Pennsylvania. The increase of income or reduction of net loss under this subsection shall not exceed the deduction claimed in subsection (2)(a) except that if the amount of the adjustment under subsection (2)(a) is less than zero, the adjustment under this subsection shall be zero.

(2)

(.5)

Expense deduction for recovery property under Section 179 of the Internal Revenue Code.

(.6) (.7) (.8) (.9)

Investment interest expense. Depletion. Net rental loss. Other deductions related to portfolio income.

(Rev. 08/01)

38

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