Pennsylvania lawmakers may be on the verge of doing something that has eluded them for years: lowering the state’s corporate tax rate.
It’s an idea that enjoys bipartisan support, with Republicans favoring the tax rate cut and Governor Tom Wolf having also offered a corporate tax cut in at least five of his government proposals. executive budget since taking office.
But the idea, at least in recent years, never materialized. But that all changed in late April when House lawmakers approved legislation to cut the state’s net corporate income tax rate and open the door to further reductions in the future.
Here’s what you need to know about the prospect of a Pennsylvania corporate net income tax cut.
What is the Pennsylvania corporate net income tax?
Like 43 other states and Washington, DC, Pennsylvania levies a corporate income tax. But unlike most states that tax corporations, Pennsylvania’s corporate tax rate is one of the highest in the country. Pennsylvania currently levies a 9.99% corporate income tax, which is the second highest in the country, according to the Tax foundation. Only New Jersey has a higher corporate tax rate, with the Garden State taxing corporate income at a rate of 11.5% taking into account a extension of the recent state surcharge on business income over $1 million. Prior to the temporary 2.5% increase, New Jersey’s corporate tax rate was 9%.
In Pennsylvania, nonprofits, homeowners associations, agricultural cooperatives, business trusts, and member organizations are all exempt from state business taxes. Outside of these exemptions, any foreign or domestic corporation that does business in Pennsylvania must pay the state’s net corporate income tax.
The state’s 9.99% rate has been in place since 1995, when Republican Governor Tom Ridge legislation signed into law lowering the rate from 11.5% to 9.99%, depending on Data from the Pennsylvania Department of Revenue.
Who wants to reduce the state’s net corporate income tax?
Reducing the state corporate tax rate has supporters on both sides of the aisle. Wolf, a Democrat, supported the proposal throughout his tenure, and Republican lawmakers also backed efforts to lower the tax rate. Business groups and member associations have also lobbied for a reduction in corporation tax.
Proponents of the CNIT cut say Pennsylvania’s high rate discourages businesses from locating in the state and that a cut in the state’s 9.99% rate would help attract more businesses – and jobs – in Pennsylvania.
State Rep. Joshua Kail, a Beaver County Republican, is sponsoring House Bill 1960, legislation that would reduce the current state corporate tax rate to 8.99%. He said during a House debate that his bill is a “measured approach that rewards growth and also allows us to have more cuts without further legislation.”
Kail recounted how her siblings left Pennsylvania for jobs in other states, and said lowering business taxes would keep both employers and workers in the Keystone state. “My wife and I have eight children of our own. And we want to see a day when our kids can graduate from high school, college, or trades, and they can fully pursue their opportunity here in Pennsylvania,” he said. “That’s what this bill is really about…It’s about jobs. These are families. It’s about growth. It’s about building a better Pennsylvania for our children and grandchildren.
While many Democrats, including state Rep. Matt Bradford, a top Democratic member of the House Appropriations Committee, said the bill didn’t go far enough to reform the tax structure. on state corporations, most Democrats ended up voting for the bill, which passed with a 195-8 vote.
“House Democrats are going to show that we’re going to meet you halfway,” Bradford told Republican lawmakers in the House.
A spokesperson for Wolf’s office said the governor looks forward to discussing changes to the CNIT during this year’s budget negotiations.
What would HB 1960 do?
The bill would immediately lower the state’s CNIT to 8.99% effective January 1, 2023. However, the legislation does not stop there, as it opens the door to future reductions in the tax.
If the state has a surplus in its general fund in some tax years after 2023, the state’s corporate tax rate could drop to 7.99% by 2025, as long as the state records budget surpluses that meet the thresholds defined in the bill.
The legislation also includes a trigger that would increase the state’s net operating loss cap over time. The government’s net operating loss provisions currently allow businesses to deduct up to 40% of a net loss in a tax year against income in a future tax year.
According to a House Republican Analysis of the legislation, reducing Pennsylvania’s CNIT to 8.99% would result in a loss of General Fund revenue of $127 million for the 2023 tax year. The analysis also estimates that every 1% of the The state’s net corporate income tax generates between $400 and $450 million each year.
Does anyone object to HB 1960?
Eight Democrats, mostly progressives in the House Democratic Caucus, voted against HB 1960. Those who voted against the bill expressed a desire for greater changes to the corporate tax structure of the State.
State Rep. Mary Jo Daley, a Democrat who is sponsoring separate legislation to cut CNIT and prevent companies from shifting profits out of Pennsylvania to low-tax states, told the House lawmakers should adopt his proposal In place. “We all know that many businesses, especially corporations with extensive out-of-state operations, have an incentive to avoid paying this tax by using various legal and corporate strategies to shift profits out of state” , Daley said.
The bill is also opposed by the Pennsylvania Budget and Policy Center, a Harrisburg-based progressive think tank. In a statement, Marc Stier, director of the organization, said Kail’s legislation “does not include any provisions to close corporate tax loopholes.” “HB 1960 will cost the state hundreds of millions of dollars a year,” Stier said. “Our initial estimate is that this will reduce state revenue by more than $700 million in the fiscal year that begins July 1, 2023.” Stier said that income should instead be used for education, housing, health care and child care.
Will Governor Tom Wolf sign the GOP bill to cut corporate taxes?
Wolf did not indicate one way or another whether he supported HB 1960. In an email, Wolf spokeswoman Elizabeth Rementer said the state’s CNIT needed to be upgraded. . “Any changes to the CNIT rate should be discussed as part of a broader modernization of the CNIT as proposed by the Governor and introduced as HB 2510, which the Governor supports and would be fairer to Pennsylvania businesses while making our state a more attractive place to do business,” Rementer said.