61 Pa. Code § 103.16 - Interest

(a) Generally. Interest includes any charge for the use or detention of money or for a forbearance from enforcement of a debt that is due, whether or not payable as such or as principal, including, for taxable years beginning on or after January 1, 1993, any excess of a publicly offered obligation's stated redemption price at maturity over the first price at which a substantial amount of the obligations included in the issue is sold to the public. For this purpose, the public does not include bond houses, brokers or other persons or organizations acting in the capacity of underwriters or wholesalers. As a general rule, interest received by or credited to the taxpayer constitutes gross income and is fully taxable. Interest income includes interest on savings or other bank deposits; interest on coupon bonds; interest on an open account, promissory note, mortgage or corporate bond or debenture; the interest portion of a condemnation award, usurious interest (unless by state law it is automatically converted to a payment on the principal); interest on legacies and life insurance proceeds held under an agreement to pay interest thereon; and interest on refunds of taxes.

(b) Bonds bought when interest defaulted or accrued. If a taxpayer purchases bonds where interest has accrued but has not been paid, interest which is in arrears but has accrued at the time of purchase is not income and may not be taxable as interest if subsequently paid. The payments are returns of capital which reduce the remaining cost basis. Interest which accrued after the date of purchase is taxable interest income for the year in which received or accrued, depending on the method of accounting used by the taxpayer.

(c) Bonds sold between interest dates. If bonds are sold between interest dates, part of the sale price represents interest accrued to the date of the sale and shall be reported as interest income.

(d) Annuities. Interest does not include amounts received under an annuity contract.

(e) Government obligations. Interest derived from obligations which are not statutorily free from state or local taxation under any other act of the General Assembly or under the laws of the United States is taxable under this section. Interest on obligations issued by or on behalf of the United States Government is not taxable under this section. Interest on obligations issued by the Commonwealth, a public authority, commission, board or other agency created by the Commonwealth, a political subdivision of the Commonwealth, or a public authority created by a political subdivision which is for the performance of essential governmental functions and which is in all respects for the benefit of the people of this Commonwealth, for the increase of their commerce and prosperity and for the improvement of their health and living conditions is not taxable under this subsection. Interest on obligations issued by other states and territories, their political subdivisions and instrumentalities is taxable under this section.

(f) Unstated or imputed interest. Unstated or imputed interest for a taxable year beginning on or after January 1, 1993, including interest derived from government obligations, shall be computed in the same manner as it is required to be computed for Federal Income Tax purposes.

Notes

61 Pa. Code § 103.16

The provisions of this § 103.16 amended March 1, 1996, effective 3/2/1996, 26 Pa.B. 887.

The provisions of this § 103.16 amended under section 354 of the Tax Reform Code of 1971 (72 P. S. § 7354).