Welcome to the Business Journal Archives
Search for articles below, or continue to the all new BusinessJournalDaily.com now.
Search
Pennsylvania Tax Reform Commission Issues Interim Report
HARRISBURG, Pa. -- The Pennsylvania Business Tax Reform Commission yesterday released an interim report that recommends lowering the state's corporate net income tax to between 6% and 7%."The commonwealth's current 9.99% tax rate is so high that it discourages both new economic development and the expansion of existing Pennsylvania businesses," the report concluded.The commission also recommended eliminating the existing $2 million annual cap on net operating losses, which it said discourages economic development and is at odds with other state policy and funding initiatives that encourage technology-based and biotech company start-ups.The commission was created by Gov. Edward G. Rendell in March. It has held a series of hearings to receive testimony from numerous tax professionals and interested organizations. Its interim report recommends sweeping changes in Pennsylvania's business tax system to make the state more competitive and its tax system more fair.To keep its recommendations revenue neutral, as required in the governor's executive order, the commission recommended that Pennsylvania shift to a mandatory combined unitary reporting system, which would require members of a unitary group of businesses to combine their income and expenses for tax purposes. Mandatory combined unitary reporting would provide a more accurate method of measuring the net income of affiliated corporations. The commission said it would substantially broaden the tax base and would be less subject to manipulation than the current separate company reporting method.The commission also recommended a new tax on "pass through" businesses. Profits of such businesses are currently taxed at the 3.07% personal income tax rate, rather than the 9.99% rate paid by ordinary corporations. The commission said that 6.92% gap is the largest of any state, and recommended that it be narrowed as part of its tax reform proposal.Also recommended in the commission's interim report are:Market-based sourcing for the sale of services. Market-based sourcing would source sales of services in the same manner as sales of personal property, thereby leveling the playing field and encouraging growth in service-related industries.Continuing the phase-out of the capital stock and franchise tax, which the commission called a "major obstacle to Pennsylvania's competitiveness."Reforming Pennsylvania's tax appeals process. The commission called the existing process "inefficient and confusing to businesses, and detrimental to the business climate of the commonwealth."The commission stressed that its interim report is a unified proposal, and should be considered as such. "The commission endorses [the recommendations] as a package," the interim report stated, "and as a means to achieve its goal of dramatically lowering the Pennsylvania corporate net income tax rate. It does not endorse any of the recommendations individually, or without a substantial CNI tax rate reduction."The commission asked the governor to extend its mandate until Nov. 30. It will use the additional time to further study ways to finance a CNI rate reduction and other changes to the commonwealth's business tax system, solicit testimony from the Department of Community and Economic Development concerning its programs and further consider the role that CNI tax apportionment can play in economic development.The commission also recommended that the Department of Revenue continue to refine its revenue estimates for the various options under consideration.The 12-member Business Tax Reform Commission is chaired by Revenue Secretary Gregory C. Fajt. "