January 20, 2016
Elimination of Onerous Pennsylvania Tax on Businesses
Effective for tax years beginning on or after January 1, 2016, Pennsylvania has eliminated the Capital Stock and Foreign Franchise tax for all taxpayers. The complete elimination of this tax had been delayed several times in the past, but was finally confirmed by Pennsylvania Governor Tom Wolf on January 4, 2016.
The Capital Stock and Foreign Franchise tax was imposed on corporations, joint-stock associations, limited liability companies, business trusts, and other companies doing business within Pennsylvania. Companies within Pennsylvania were subject to the capital stock tax, while companies located outside the state (but doing business in Pennsylvania) were subject to the foreign franchise tax. This tax was based on a company's total equity plus an average of the company's book income for up to five prior years.
The capital stock tax rate has decreased in recent years from .89 mills in 2013 to .67 mills in 2014, and finally, to a rate of .45 mills for 2015 the last year of the tax.
Many business types, including S corporations, LLCs taxed as pass-through entities and business trusts will no longer be required to file Pennsylvania Corporate Tax Reports (RCT-101) for tax years beginning on or after January 1, 2016. Therefore, these entities will be marking their 2015 RCT-101s as final returns.
While this new law will be in effect for tax years beginning 2016 and later, this information may be used for companies to compute estimates and deferred tax assets.
Should you have any questions about how this provision will affect your company, please contact your Marcum Tax professional.