Will my employees' non-competes transfer to a buyer?

Only if the agreements say they can. Under Hess v. Gebhard, a restrictive employment covenant cannot be assigned to an asset purchaser without consent, and once you have left the line of business you retain no protectible interest of your own to enforce it either. Read the assignment clause in every producer and portfolio manager agreement. Repairing it later runs into Socko, which requires new consideration for a covenant signed after employment has already begun, and continued employment does not qualify. An equity sale does not raise the question, because the employer entity does not change and nothing is assigned.

Can an out-of-state buyer acquire a Pennsylvania management company?

More easily than a financial buyer with no licensed principal anywhere. A buyer whose principal already holds a real estate license in another state can obtain a Pennsylvania reciprocal license under Section 602 without sitting the Pennsylvania examination, and an entity applicant can designate that person as its broker of record. The three-year experience requirement in Section 511 bites on a buyer with no licensed principal in any state. If the buyer moves its principal place of business into Pennsylvania, the reciprocal license will not renew and a standard one is required.

Is the tax on my gain different if the company is in Philadelphia?

Yes, and it has to be modeled separately. Outside Philadelphia the local earned income tax reaches earned income and net profits, and a gain reported as net gain on PA Schedule D is neither, so the earned income tax does not attach to the sale. Philadelphia sits outside the Local Tax Enabling Act and taxes under its own authority, and its Business Income and Receipts Tax regulations pull gains on capital assets located in the city into the tax base. The line is the city boundary; the surrounding boroughs and townships are inside the Act.

Does Pennsylvania make my buyer liable for my unpaid state tax?

On an asset sale, and without a ceiling. Section 1403 of the Fiscal Code requires ten days' notice to the Pennsylvania Department of Revenue before the transfer is completed, and a certificate showing that all state tax reports have been filed and all state taxes paid. A purchaser that does not require the certificate is liable for the seller's unpaid taxes to the date of transfer, whether or not those taxes have been settled, assessed or determined, and the section sets no cap on that liability and no limitations period running in the purchaser's favor. It does not reach an equity sale, where nothing is transferred in bulk. Form REV-181 is the single application for both the Department of Revenue and the Department of Labor and Industry, so an unfiled unemployment compensation return holds the clearance as effectively as an unfiled sales tax return.

Property Management in Pennsylvania

Hess v. Gebhard can leave your managers' non-competes enforceable by no one.

Two Pennsylvania rules decide more about a management company sale than the operating numbers do. Under Hess v. Gebhard, a restrictive employment covenant cannot be assigned to an asset buyer without consent, and a seller that has left the line of business retains no interest of its own to enforce, so the covenants on your managers can end up enforceable by no one. The broker experience requirement that looks like a wall in front of every out-of-state buyer is waived by reciprocity for anyone already licensed at home, which leaves it standing in front of a much narrower group. The tax on the gain has no capital gains regime behind it, and for a nonresident selling equity it reaches nothing at all.

Philadelphia–Camden–Wilmington / Pittsburgh / Allentown–Bethlehem–Easton (Lehigh Valley) / Harrisburg–Carlisle

Reciprocity, and the buyer the license actually stops

Section 511 requires a broker applicant to have been a licensed real estate salesperson for at least three years, or to hold educational or experience qualifications the commission deems to be the equivalent. Read alone, that is a wall in front of every buyer who has never held a Pennsylvania license, and it matters because managing real estate for someone else for a fee is brokerage here: Section 201 of the Real Estate Licensing and Registration Act puts "manages any real estate" inside the definition of Broker, Section 301 makes conducting that business without a license unlawful, and Section 513 requires a corporation, partnership or association applying for a broker's license to designate an individual as its broker of record.

The wall has a door in it. Under Section 602, a person holding a current real estate license from another state whose principal place of business sits outside Pennsylvania may be issued a reciprocal license on a certified copy of that license, a disciplinary statement, a fee and a consent to service of process. Section 602(h)(3) exempts a reciprocal licensee from taking and passing the examination required for standard licenses, and Section 602(j) lets an entity applying for a reciprocal broker's license designate a broker of record who holds a reciprocal or a standard license. An out-of-state operator whose principal is already licensed at home clears Pennsylvania on paperwork.

The buyer the three-year requirement actually stops is the financial buyer with no licensed principal in any state. That changes how a seller prices their own availability after closing. An owner who is personally the broker of record holds a real lever against a private equity platform buying its first management company, and very little of one against a regional operator that already employs a licensed principal. Section 602(g) adds a catch running the other way: a reciprocal licensee whose principal place of business becomes located in Pennsylvania may not renew that license and must obtain a standard one, and Section 601 requires a standard-license broker to maintain a fixed office in the Commonwealth. A buyer that intends to run the business from a Pennsylvania headquarters has walked itself back onto the standard track.

The exclusions help less than buyers assume. Section 304 excludes a person "employed by an owner of real estate for the purpose of managing or maintaining multifamily residential property," and only where that person is not authorized to enter into leases for the owner, to negotiate terms or conditions of occupancy with current or prospective tenants, or to hold tenant money other than on the owner's behalf. Two limits follow from the drafting. It is written for an owner's own staff, so the employees of a third-party fee manager sit outside it whatever the property type, and it reaches multifamily property only, so a scattered-site or single-family book draws nothing from it at all.

One line in the Act runs at the seller's side of the table. RELRA defines its licensed acts by reference to real estate, and the sale of a company is not among them, so no Pennsylvania real estate license is required to represent an owner on the sale of the company itself.

The covenant nobody is left holding after Hess

In Hess v. Gebhard & Co., 808 A.2d 912 (Pa. 2002), an insurance agency sold its book of business and purported to assign an employee's non-compete to the buyer along with it. The Pennsylvania Supreme Court reversed enforcement, holding that "an assignment of a restrictive employment covenant without the consent of the assignee otherwise offends public policy." The Court was unusually blunt about where the fault sat: "It is a simple matter for the employer to insert an assignment clause into the agreement at the time that the agreement is drafted to cover future contingencies," and "[t]he failure of an employer to include specific provisions in an employment contract will not be judicially forgiven or corrected at the expense of the employee." It also held that a seller which has left the line of business retains no protectible interest of its own to enforce.

Inside a property management company those covenants sit on the portfolio managers, and Hess decides whether they travel with the book. In an asset sale where the employment agreements are silent on assignment, the buyer cannot enforce them, and the seller, now out of the business, cannot enforce them either. Most owners have never heard this. Most buyers' counsel have, which is why it tends to arrive as a retention holdback.

Hess decides assignability and little else, and overstating it does a seller no favors. Confidentiality obligations, protection of the owner list as a trade secret, and any covenant the buyer signs directly with a manager it retains all sit outside the holding, and an agreement that already carries assignment or successors-and-assigns language is a different case from the one the Court decided. What settles the question in any particular file is the assignment clause in the producer and portfolio manager agreements.

Both of the obvious repairs have a Pennsylvania problem. Re-papering incumbent managers during diligence runs into Socko v. Mid-Atlantic Systems of CPA, Inc., 126 A.3d 1266 (Pa. 2015), where the Court held that a covenant signed after employment has already begun is unenforceable without new consideration, and that reciting an intent to be legally bound under the Uniform Written Obligations Act does not supply it. New consideration means a change in job status or another significant benefit: a promotion, a raise, a retention payment. Continued employment does not qualify. Bolting a no-hire onto the purchase agreement instead runs into Pittsburgh Logistics Systems v. Beemac Trucking (Pa. 2021), where the Court held a no-hire clause between two contracting businesses unenforceable because it restrained employees who were not parties to it and received nothing for it.

That leaves two routes and both cost something. Pay for the covenants before signing, on the seller's side of the ledger, or sell the equity, where the employer entity does not change and nothing is assigned.

A flat 3.07 percent, with no capital gains regime behind it

Pennsylvania taxes personal income at one rate, 3.07 percent, across eight classes of income, one of which is net gains from the disposition of property. The Department of Revenue's Personal Income Tax Guide states that Pennsylvania "makes no provision for capital gains," that "[t]here are no provisions for long-term and short-term gains," that the state "has no provisions for the carryover of losses from one tax year to another year," and that a loss in one class of income may not offset a gain in another. A Pennsylvania owner cannot carry a prior-year loss into the closing, cannot carry an unused loss forward off a large gain year, and cannot net a loss in the management business against the gain on selling it.

The rate is right for pass-through owners and wrong for one common structure. It applies to individuals, estates, trusts, partnerships, S corporations and limited liability companies not federally taxed as corporations. A company held in a C corporation that sells its assets sits outside the personal income tax entirely: the entity pays Pennsylvania corporate net income tax first, 7.49 percent for calendar 2026 on the Department's published schedule, and only what comes out afterward reaches an owner.

The second exception runs the seller's way. Personal Income Tax Bulletin 2005-02 provides that gain from a disposition of a proprietary interest in a corporation, a partner's interest in a partnership, a member's interest in a limited liability company, or a shareholder's share in a Pennsylvania S corporation "does not constitute income from sources within this Commonwealth for a nonresident." A nonresident owner selling the equity of a Pennsylvania management company has no Pennsylvania-source gain. The same owner selling the assets does. For an out-of-state owner the distance between those two structures is the whole 3.07 percent.

The local layer is where advisers from outside the state add a tax that is not there. Municipalities and school districts levy an earned income tax under the Local Tax Enabling Act, which taxes "earned income" and "net profits," and the net profits definition expressly excludes income that is not paid for services provided and is in the nature of earnings from an investment. Neither definition reaches a gain reported as net gain on PA Schedule D, so outside Philadelphia the earned income tax does not attach to the proceeds of the sale. That advantage is easy to hand back: a consulting agreement, or an earn-out weighted toward salary, turns a gain the earned income tax cannot reach into compensation it can.

Philadelphia taxes under its own authority. The Local Tax Enabling Act empowers cities of the second class, cities of the second class A, cities of the third class, boroughs, towns, townships and certain school districts, and cities of the first class are absent from that enumeration. Philadelphia's Business Income and Receipts Tax regulations put "the gains (not gross proceeds) resulting from the sale of capital assets" into the tax base where the property is located in Philadelphia at the time of the sale, so a Philadelphia target has to be modeled on its own terms. The line runs at the city boundary, and the boroughs and townships around it sit inside the Act's enumeration.

Questions Pennsylvania sellers ask

Will my employees' non-competes transfer to a buyer?: Only if the agreements say they can. Under Hess v. Gebhard, a restrictive employment covenant cannot be assigned to an asset purchaser without consent, and once you have left the line of business you retain no protectible interest of your own to enforce it either. Read the assignment clause in every producer and portfolio manager agreement. Repairing it later runs into Socko, which requires new consideration for a covenant signed after employment has already begun, and continued employment does not qualify. An equity sale does not raise the question, because the employer entity does not change and nothing is assigned.
Can an out-of-state buyer acquire a Pennsylvania management company?: More easily than a financial buyer with no licensed principal anywhere. A buyer whose principal already holds a real estate license in another state can obtain a Pennsylvania reciprocal license under Section 602 without sitting the Pennsylvania examination, and an entity applicant can designate that person as its broker of record. The three-year experience requirement in Section 511 bites on a buyer with no licensed principal in any state. If the buyer moves its principal place of business into Pennsylvania, the reciprocal license will not renew and a standard one is required.
Is the tax on my gain different if the company is in Philadelphia?: Yes, and it has to be modeled separately. Outside Philadelphia the local earned income tax reaches earned income and net profits, and a gain reported as net gain on PA Schedule D is neither, so the earned income tax does not attach to the sale. Philadelphia sits outside the Local Tax Enabling Act and taxes under its own authority, and its Business Income and Receipts Tax regulations pull gains on capital assets located in the city into the tax base. The line is the city boundary; the surrounding boroughs and townships are inside the Act.
Does Pennsylvania make my buyer liable for my unpaid state tax?: On an asset sale, and without a ceiling. Section 1403 of the Fiscal Code requires ten days' notice to the Pennsylvania Department of Revenue before the transfer is completed, and a certificate showing that all state tax reports have been filed and all state taxes paid. A purchaser that does not require the certificate is liable for the seller's unpaid taxes to the date of transfer, whether or not those taxes have been settled, assessed or determined, and the section sets no cap on that liability and no limitations period running in the purchaser's favor. It does not reach an equity sale, where nothing is transferred in bulk. Form REV-181 is the single application for both the Department of Revenue and the Department of Labor and Industry, so an unfiled unemployment compensation return holds the clearance as effectively as an unfiled sales tax return.

Where these facts come from

Everything above that is a rule rather than a judgment is listed here with its publisher and the date it was checked. Licensing, tax and non-compete rules change, sometimes without much notice. None of this is legal or tax advice, and it is not a substitute for your own counsel and CPA.

Real Estate Licensing and Registration Act, Section 201: "Broker" includes any person who, for another and for a fee, "(i) negotiates with or aids any person in locating or obtaining for purchase, lease or an acquisition of interest in any real estate" and "(iii) manages any real estate." Section 301 makes it unlawful to engage in or conduct the business or act in the capacity of a broker within the Commonwealth without a license. Section 304(10) excludes "[a]ny person employed by an owner of real estate for the purpose of managing or maintaining multifamily residential property: Provided, however, That such person is not authorized or empowered by such owner to enter into leases on behalf of the owner, to negotiate terms or conditions of occupancy with current or prospective tenants or to hold money belonging to tenants other than on behalf of the owner." None of the eleven exclusions in Section 304 covers a third-party fee manager, and none covers scattered-site or single-family management. The Act defines its licensed acts by reference to real estate throughout, and the sale of a company is not among them.
Pennsylvania General Assembly, Real Estate Licensing and Registration Act (Act 9 of 1980, as amended through Act 99 of Oct. 16, 2024). Checked 2026-09-06.
Real Estate Licensing and Registration Act, Section 511(4): a broker applicant "shall have been engaged as a licensed real estate salesperson for at least three years or possess educational or experience qualifications which the commission deems to be the equivalent thereof." Section 513: "If the applicant for a broker's license is a corporation, partnership or association, then the provisions of sections 511 and 512 shall apply to the individual designated as broker of record." Section 601(a): a broker holding a standard license "shall maintain a fixed office within this Commonwealth." Section 602(a): a person holding a current license from another state whose principal place of business is outside the Commonwealth may be issued a reciprocal license on a certified copy of that license, a disciplinary statement, a verified statement, a fee and a consent to service of process. Section 602(g): a reciprocal license will not be renewed once the licensee's principal place of business becomes located in Pennsylvania, and a standard license is then required. Section 602(h)(3): a reciprocal licensee "shall be exempt from taking and passing the examination required for standard licenses." Section 602(j): an entity applying for a reciprocal broker's license must designate "a broker of record who is an individual holding a current reciprocal or standard broker's license."
Pennsylvania General Assembly, Real Estate Licensing and Registration Act (Act 9 of 1980, as amended). Checked 2026-09-06.
Hess v. Gebhard & Co., 808 A.2d 912 (Pa. 2002): the Court reversed enforcement of a non-compete assigned to the purchaser of an agency's book, "because enforcement is not reasonably necessary to protect the current, non-protectible business interests of Hoaster and because an assignment of a restrictive employment covenant without the consent of the assignee otherwise offends public policy." The opinion adds that "[i]t is a simple matter for the employer to insert an assignment clause into the agreement at the time that the agreement is drafted to cover future contingencies," and that "[t]he failure of an employer to include specific provisions in an employment contract will not be judicially forgiven or corrected at the expense of the employee."
Supreme Court of Pennsylvania, slip opinion J-80-2002. Checked 2026-09-06.
Socko v. Mid-Atlantic Systems of CPA, Inc., 126 A.3d 1266 (Pa. 2015): a restrictive covenant signed after the employment relationship has already begun is unenforceable unless supported by new consideration such as a change in job status or another significant benefit, and a recital of intent to be legally bound under the Uniform Written Obligations Act does not cure the absence of consideration.
Seyfarth Shaw, Trading Secrets. Checked 2026-09-06.
Secondary source summarizing the decision. Confirm the current state of the rule and its application to specific agreements with Pennsylvania counsel.
Pittsburgh Logistics Systems, Inc. v. Beemac Trucking, LLC (Pa. 2021), No. 31 WAP 2019, decided April 29, 2021: the Pennsylvania Supreme Court held that a no-hire provision ancillary to a services contract between two business entities is "unreasonably in restraint of trade and therefore unenforceable," in part because it restrained employees who were not parties to the contract and received no consideration for it.
Duane Morris LLP. Checked 2026-09-06.
Secondary source summarizing the decision. Whether a particular no-hire or non-solicit provision falls within the holding is a question for Pennsylvania counsel.
Pennsylvania personal income tax is levied at 3.07 percent against the taxable income of resident and nonresident individuals, estates, trusts, partnerships, S corporations, business trusts and limited liability companies not federally taxed as corporations, across eight classes of income including net gains or income from the dispositions of property.
Pennsylvania Department of Revenue. Checked 2026-09-06.
PA Personal Income Tax Guide, Net Gains (Losses) from the Sale, Exchange or Disposition of Property: "Pennsylvania makes no provision for capital gains. There are no provisions for long-term and short-term gains." "Pennsylvania also has no provisions for the carryover of losses from one tax year to another year. Furthermore, Pennsylvania does not allow an offset of loss against gain from one class of income to another." Gains on the sale or disposition of business and investment property are reported as net gain on PA Schedule D, and the Guide refers nonresidents to Personal Income Tax Bulletin 2005-02 on the taxability of goodwill.
Pennsylvania Department of Revenue. Checked 2026-09-06.
Personal Income Tax Bulletin 2005-02, Gain or Loss Derived From The Disposition Of A Going Concern, Section 2.1: "The gain derived from a disposition of a proprietary interest in a corporation, investment company or investment partnership, a partner's interest in a partnership, a member's interest in a limited liability company, or a shareholder's share in a Pennsylvania S corporation or business trust does not constitute income from sources within this Commonwealth for a nonresident." Section 2.2 sources a sole proprietor's going-concern gain to Pennsylvania to the extent attributable to real or tangible personal property sited in the Commonwealth and to intangible property employed in the business carried on here.
Pennsylvania Department of Revenue, PIT Bulletin 2005-02 (issued Dec. 15, 2005). Checked 2026-09-06.
Cited here for how a nonresident's going-concern gain is sourced, which is what the bulletin addresses. It does not set the class-4 versus class-5 classification.
The Pennsylvania corporate net income tax rate is 7.49 percent for the period January 1, 2026 through December 31, 2026, under a statutory rate reduction schedule that continues to 4.99 percent beginning January 1, 2031. Domestic and foreign corporations doing business in Pennsylvania are subject to the tax.
Pennsylvania Department of Revenue. Checked 2026-09-06.
The Local Tax Enabling Act empowers "cities of the second class, cities of the second class A, cities of the third class, boroughs, towns, townships of the first class, townships of the second class, school districts of the second class, school districts of the third class and school districts of the fourth class including independent school districts" to levy the taxes it authorizes; cities of the first class, which is Philadelphia, do not appear in that enumeration. The Act defines "Earned income" as compensation as determined under section 303 of the Tax Reform Code of 1971 and "Net profits" as the net income from the operation of a business other than a corporation as determined under the same section, expressly excluding "Income which: (i) is not paid for services provided; and (ii) is in the nature of earnings from an investment," together with gains on farm machinery, on livestock held 12 months or more for draft, breeding or dairy purposes, and on other capital assets of a farm.
Pennsylvania General Assembly, Local Tax Enabling Act (Act 511 of 1965, as amended, including by Act 32 of 2008 and Act 18 of 2018). Checked 2026-09-06.
Philadelphia Business Income and Receipts Tax Regulations, Section 324, Sale of Capital Assets: "Except as otherwise provided, the gains (not gross proceeds) resulting from the sale of capital assets, such as plant, machinery and equipment, furniture and fixtures, vehicles, etc., are to be included in the tax base if the property is located in Philadelphia at the time of the sale."
City of Philadelphia, Department of Revenue, BIRT regulations (compiled April 2025). Checked 2026-09-06.
Philadelphia's business taxes are levied under its own authority rather than the Local Tax Enabling Act. Rates and the full BIRT computation are outside the scope of this page and should be modeled with a Philadelphia tax adviser.
Fiscal Code Section 1403(a): "Every corporation, joint-stock association, limited partnership, or company, which shall sell or transfer in bulk fifty-one per centum or more of any stock of goods, wares, or merchandise of any kind, fixtures, machinery, equipment, buildings, or real estate, shall give the Department of Revenue ten days' notice of the sale or transfer prior to the completion of the transfer of such property." The seller must present the purchaser a certificate showing all State tax reports filed and all State taxes paid to the date of transfer, and "[t]he failure of the purchaser to require this certificate shall render such purchaser liable to the Commonwealth for the unpaid taxes owing by the seller or transferer to and including the date of such transfer, whether or not at that time such taxes have been settled, assessed, or determined." The section sets no cap on that liability, no withholding safe harbor and no limitations period running in the purchaser's favor. Excepted are transfers made under order of court or by assignees for the benefit of creditors, executors, administrators, receivers or any public officer in an official capacity.
Pennsylvania General Assembly, The Fiscal Code (Act 176 of 1929, Section 1403 as amended). Checked 2026-09-06.
The Department of Revenue administers bulk sale clearance so that a purchaser does not unknowingly become liable for a seller's Pennsylvania tax liabilities, and Form REV-181, Application for Tax Clearance Certificate, is the application used to request the certificate.
Pennsylvania Department of Revenue, Bulk Sales Notice. Checked 2026-09-06.
A bulk sale clearance from the Office of Unemployment Compensation Tax Services is requested on the same Form REV-181, with the original sent to the Department of Revenue and a copy to the Department of Labor and Industry, and it certifies that unemployment compensation tax liabilities have been paid.
Pennsylvania Department of Labor and Industry. Checked 2026-09-06.

Page last reviewed 2026-09-06.

How other states handle the same questions

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