Pennsylvania companies carry heaviest tax burden
Whether young or mature, retail or research-oriented, companies in Pennsylvania are saddled with the worst or near-worst state tax burdens in the nation, according to a comprehensive analysis issued on Wednesday.
According to The Tax Foundation, Pennsylvania ranked 50th for imposing the heaviest overall taxes on mature businesses and 49th in terms of levies on newly established ones.
The nonpartisan research group in Washington called its analysis "a landmark, apples-to-apples comparison of the tax burden states impose on businesses."
Pennsylvania additionally ranked worst for imposing the heaviest taxes on retailers, on research and development centers and on corporate headquarters.
"It starts with your corporate net income tax rate. With Pennsylvania's rate at 9.99 percent, it's not only one of the highest in the nation, it's punitive to both new and existing businesses," said the group's president, Scott Hodge.
Only Iowa's 12 percent corporate net income tax rate is higher than Pennsylvania's.
Gov. Tom Corbett's office said the findings underscore the reason voters elected the Shaler Republican. Corbett campaigned "to change the environment where Pennsylvania ranked at the bottom or near the bottom, and to change business taxes and the business climate," said his spokesman, Kevin Harley.
The foundation compared state and local taxes on business, from levies on net income to real property to sales, and looked at states' tax incentives for job creation or investments. It weighed the factors to arrive at a state's total effective tax rate on retailers, heavy manufacturers and call and distribution centers.
Sales taxes -- 7 percent in Allegheny County and 6 percent elsewhere in Pennsylvania -- largely pushed the state's rank to 50th for taxing mature retailers, and 47th for newer ones.
Western Pennsylvania's research and development centers face the worst tax burdens in the nation, based on property taxes, corporate income taxes and other factors, the foundation said.
Brian Kennedy, vice president of government relations for the Pittsburgh Technology Council, said part of the problem is that the state is relatively stingy with tax credits for businesses that incur net losses. That is common for most early-stage, research-oriented companies, which the council largely represents.
"In just about every other state, they let you carry forward an unlimited amount of your losses" as credits against future tax bills, Kennedy said. "But Pennsylvania allows only $2 million, which has got to be a big factor."
Kennedy said he expects Corbett's proposed reforms — such as lifting the cap on loss credits and lowering the corporate net income tax rate — to "move Pennsylvania out of dead last."
Pennsylvania ranked worst in terms of taxing corporate headquarters, based on the nation's second-highest property taxes, and a form of head tax.
However, several big employers that moved headquarters from Pittsburgh to New York — Alcoa Inc., Bank of New York Mellon Corp. and others — now find themselves in the second-worst state for taxing corporate headquarters, according to the foundation.
"States are not only competing for capital investment against each other, but increasingly, against other countries, many of which have much lower tax rates," Hodge said. "And the further out of step you are, the less able you are to attract investment."
Pennsylvania shines, however, in terms of its taxation of mature, capital-intensive manufacturers, ranking fifth-best in the nation. The state lets companies exclude from income taxation the portion of sales made out of state — a formula that favors heavy manufacturers, which tend to sell products to far-flung places.Additional Information:
How Pennsylvania's last-place ranking for taxing mature businesses, or those 10 years or older, and next-to-last place ranking for taxing newly established businesses compares to neighboring states:
Pennsylvania: 50th, 49th
West Virginia: 48th, 33rd
Ohio: 5th, 3rd
Maryland: 8th, 46th
New York: 42nd, 37th
New Jersey: 41st, 27th
Delaware: 24th, 16th
Source: The Tax Foundation