Experts: Little progress made on business taxes
By Thomas Olson
Published: Saturday, Feb. 23, 2013, 8:49 p.m.
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.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Highmark’s insurance profit falls 40%
- Corbett: Coal is working
- Mastech Holdings records 51 percent profit jump in 1st quarter
- PNC’s CEO elected board chairman
- Drugmakers ready to carve out deals any way they can
- Earthquakes could affect Beaver Valley nuke plant more than first thought
- BNY Mellon notches $661M profit in 1st quarter
- McDonald’s profit slips amid weak sales
- ATI takes 1st-quarter loss, but says outlook is good
- ‘Old GM’ defense expected in court fight over faulty ignition switch
- AT&T joins crowded field with online video plans