Kentucky Joins States Taxing SaaS and Pennsylvania Codified Income Tax Economic Nexus

August 30, 2022

By: Aspen Fairchild, SALT Senior Associate

At a glance

  • The main takeaway: Kentucky enacted legislation that imposes sales tax on over 35 new services, including SaaS, and recent Pennsylvania legislation made several changes to its corporate income tax.
  • Assess the impact: If not properly planned for, your business could be negatively affected by these new and notable tax provisions.
  • Take the next step: Aprio’s State and Local Tax (SALT) team can guide you through the complex rules of these new tax provisions and assess the impact they could have on your business. 

Schedule a free consultation today to learn more!

The full story:

Below is a summary of notable provisions from recent legislation enacted in Kentucky and Pennsylvania.

Kentucky expands the list of taxable services to include SaaS

On April 13, 2022, the Kentucky Legislature overrode Governor Andy Beshear’s veto of House Bill 8, which contains several new tax provisions. For sales and use tax purposes, the legislation expanded the list of taxable services subject to state sales and use tax to include over 35 additional services.[1] Services such as marketing and website hosting will now be subject to the state sales tax starting January 1, 2023. Refer to House Bill 8 for a full listing of taxable services that may apply to your business.

It’s important to note, starting in 2023, Kentucky will join the list of states that tax “prewritten computer software access services” (i.e., SaaS). The legislation defines “prewritten computer software access services” as follows:[2]

“…the right of access to prewritten computer software where the object of the transaction is to use the prewritten computer software while possession of the prewritten computer software is maintained by the seller or a third party, wherever located, regardless of whether the charge for the access or use is on a per use, per user, per license, subscription, or some other basis”

Pennsylvania reduces corporate income tax rate and changes sourcing rules for intangible property

On July 8, 2022, Pennsylvania Governor, Tom Wolf, signed House Bill 1342, which amended several sections of the state’s tax code. A few of those changes relating to corporate income tax are summarized below.

Starting with the 2023 tax year, Pennsylvania’s corporate income tax rate will phase down from its current rate of 9.9%. For tax years beginning in 2023, the corporate income tax rate will be 8.99%, and will decrease 0.5% yearly until it reaches its final 4.99% rate beginning January 1, 2031.[3]

In addition, the legislation codified the state’s corporate income tax economic nexus standard, which until now, was summarized in the Pennsylvania Department of Revenue’s Corporation Tax Bulletin 2019-04. For tax years beginning after December 31, 2022, a corporation with $500,000 or more of sales sourced to Pennsylvania in the current tax year is presumed to have substantial nexus with the state and is subject to state corporate income tax.[4]

Finally, the legislation amends the rules for sourcing gross receipts from intangible property. Currently, gross receipts from intangible property are sourced using an income-producing activity (i.e., costs of performance) approach. For tax years beginning after December 31, 2022, gross receipts from intangible property will be sourced using a market-based approach, which is currently used for sourcing receipts from services.[5] 

For example, under the new rules, gross receipts from the lease or license of intangible property are sourced to Pennsylvania “if and to the extent the property is used in this State.” For businesses that make unsecured loans to unaffiliated parties, either through credit cards or otherwise, any interest, fees and penalties will be sourced to Pennsylvania if the borrower or cardholder is located in the state. These new sourcing rules will impact whether a taxpayer exceeds the state’s economic nexus rule described above.

There are several other specific provisions addressing certain types of income from intangible property, and the legislation provides that any gross receipts from intangible property not specifically addressed shall be excluded from the numerator and denominator of the sales factor.

The bottom line

Aprio’s SALT team can help businesses address the impact of these changes in Kentucky and Pennsylvania. We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Aspen Fairchild, SALT Senior Associate, or Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at for more information.

This article was featured in the August 2022 SALT newsletter.

[1] Kentucky Revised Statutes §139.200(2)(q) – (ay), Effective January 1, 2023

[2] Kentucky Revised Statutes §139.010(33), Effective January 1, 2023

[3] Pa. Stat. Ann. § 7402(b), effective July 8, 2022.

[4] Pa. Stat. Ann. § 7402(a)(5), applicable to taxable years beginning after December 31, 2022.

[5] Pa. Stat. Ann. § 7401(3)(2)(a)(17), applicable to taxable years beginning after December 31, 2022


Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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About the Author

Jeff Glickman

Jeff Glickman is the partner-in-charge of Aprio, LLP’s State and Local Tax (SALT) practice. He has over 18 years of SALT consulting experience, advising domestic and international companies in all industries on minimizing their multistate liabilities and risks. He puts cash back into his clients’ businesses by identifying their eligibility for and assisting them in claiming various tax credits, including jobs/investment, retraining, and film/entertainment tax credits. Jeff also maintains a multistate administrative tax dispute and negotiations practice, including obtaining private letter rulings, preparing and negotiating voluntary disclosure agreements, pursuing refund claims, and assisting clients during audits.