Experts: Little progress made on business taxes
Pennsylvania government made limited progress in reforming a business tax structure considered overly complex and burdensome, business and public policy leaders say.
The state levies more than 20 types of taxes on businesses, according to the Department of Revenue, and many companies are subject to several taxes.
The Tax Foundation, a nonpartisan research group in Washington, ranks Pennsylvania 46th, or fifth-worst, in the nation for business friendly taxation.
“Year in and year out, we're always trying to engage state legislators on tax reform,” said Sam Denisco, vice president of government affairs for the Pennsylvania Chamber of Business and Industry. The Harrisburg group has about 1,000 company members statewide.
Businesses of all types paid a total of more than $8.77 billion in taxes to Pennsylvania in the fiscal year ending June 30, according to the Revenue Department. That was 2.1 percent more than the $8.59 billion they paid in fiscal 2011.
The largest share of those tax receipts came from the corporate net income tax, which is 9.99 percent of company profits. The tax generated more than $2.02 billion in the past fiscal year, and more than $2.13 billion in fiscal 2011.
At 9.99 percent, Pennsylvania's levy is the nation's second-highest CNI tax rate, according to The Tax Foundation. That's behind only Iowa, but nominally. Iowa's 12 percent rate applies to corporate profits above $250,000 but steps down to 6 percent for companies with profits of less than $25,000.
One significant reform in Pennsylvania occurred last summer. The 2013 budget bill eliminated the property and payroll component of computing CNI taxes, leaving the levy to be based solely on a company's sales.
“The old way had the effect of punishing corporations for having employees and investing in hard assets,” Denisco said.
Another one of Pennsylvania's biggest sources of business tax revenue is the gross receipts tax on electric, telecommunications and transportation companies, which companies generally pass on to consumers. The tax generated $1.33 billion last fiscal year, and more than $1.22 billion in fiscal 2011.
Probably businesses' most dreaded tax is the capital stock and franchise tax, a levy based on a company's book value and income that raised $837 million last fiscal year. It is due to expire in January 2014.
“It was supposed to expire in 2009, but when the recession hit, legislators didn't want to phase it out because there was a shortfall in the budget,” said Nate Benefield, director of research at the Commonwealth Foundation, a public policy group in Harrisburg.
“That's hugely important because Pennsylvania is the only state to have both a CNI tax and a capital stock and franchise tax, and that has discouraged companies from locating in Pennsylvania,” Denisco said.
Blairsville Republican state Rep. David Reed intends to reintroduce business-tax reforms that passed the House but not the Senate, said Todd Brysiak, executive director of the House Republican policy committee.
One provision would phase down the CNI tax rate to 6.99 percent by 2019. Another would remove the cap on losses companies could use to lower tax bills later. Pennsylvania allows businesses to deduct up to the greater of $3 million or 20 percent of losses.
Pennsylvania and New Hampshire are the only states that impose a cap on using so-called “net operating losses” as deductions against future year's income. Being able to deduct those losses is important for start-up businesses, which usually post losses in their initial years.
Another provision would tighten the so-called “Delaware loophole,” which allows large companies to transfer on paper certain assets from Pennsylvania to an out-of-state subsidiary or affiliate. Reed's bill would require companies to prove that they have a legitimate business reason for such a transfer.
“Almost every state in the nation has a measure to close the Delaware loophole, and for years there have been calls in Pennsylvania to close it,” said Brysiak.
Thomas Olson is a staff writer for Trib Total Media. He can be reached at 412-320-7854 or firstname.lastname@example.org.