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taxpayer's trade or business. The wages paid to those employees are treated as a capital expenditure by the taxpayer. The amount of such wages is included in the payroll factor.

Example (2): The taxpayer owns various securities as an investment separate and apart from its trade or business. The management of the taxpayer's investment portfolio is the only duty of Mr. X, an employee. The salary paid to Mr. X is excluded from the payroll factor.

The total amount "paid" to employees is determined upon the basis of the taxpayer's accounting method. If the taxpayer has adopted the accrual method of accounting, all compensation properly accrued shall be deemed to have been paid.

The term "compensation" means wages, salaries, commissions and any other form of remuneration paid to employees for personal services. Payments made to an independent contractor or any other person not properly classifiable as an employee are excluded. Only amounts paid directly to employees are included in the payroll factor. Amounts considered paid directly include the value of board, rent, housing, lodging and other benefits or services furnished to employees by the taxpayer in return for personal services provided that such amounts constitute income to the recipient under the Federal Internal Revenue Code.

In the case of employees not subject to the Internal Revenue Code, e.g., those employees in foreign countries, the determination of whether such benefits or services would constitute income to the employees shall be made as though such employees were subject to the Federal Internal Revenue Code.

In filing returns with Philadelphia, if the taxpayer departs from or modifies the treatment of compensation paid used in returns for prior years, the taxpayers shall disclose in the return for the current year the nature and extent of the modification.

  • (b)

    Numerator. The numerator of the payroll factor is the total amount paid in Philadelphia during the period by the taxpayer for compensation.

  • (c)

    Denominator. The denominator of the payroll factor is the total amount paid everywhere during the tax period by the taxpayer for compensation. This amount shall be determined pursuant to the same procedures used to calculate the numerator.


Compensation Paid in Philadelphia. Compensation is paid in Philadelphia if:

  • (i)

    The employee's service is performed entirely within the City; or

  • (ii)

    The employee's services are performed both within and without the City, and


the service performed without the City is incidental to the employee's service within the City. The word "incidental" means any service which is temporary or transitory in nature, or which is rendered in connection with an isolated transaction; or

(.2) (.3)

the employee's base of operations is in this City; or

There is no base of operations in any political subdivision in which some part of the service is performed but the place from which the service is directed or controlled is in this City; or


(Rev. 08/01)

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