Pennsylvania Budget Bill Includes Tax Changes
By Dan Effron, Tax Partner
Governor Rendell has signed the new Pennsylvania budget bill which includes the following tax related provisions:
Capital Stock/Franchise Tax: The planned phase-out of the capital stock/franchise tax has been slowed. The current rate of 2.89 mills will be in place through December 31, 2011. The rate declines to 1.89 mills in 2012 and .89 mills in 2013. The tax will now be phased out completely by 2014. Previously, the tax was scheduled to expire in 2011. Note that the change in rate for 2009 does not apply to any estimated payments of capital stock/franchise tax due before January 1, 2010.
For tax years beginning after December 31, 2009, the fixed formula deduction for purposes of capital stock/franchise tax is increased from $150,000 to $160,000.
Corporate Net Income Tax (CNI): The computation of the apportionment percentage for CNI is amended to increase the weight of the sales factor. For tax years beginning after December 31, 2008, the payroll and property factor will each be weighted at 8.5% and the sales factor weighted at 83%. For tax years beginning after December 31, 2009, the payroll and property factor will each be weighted at 5% and the sales factor weighted at 90%. This change will generally reduce the CNI tax for those companies who maintain a significant physical presence in Pennsylvania while increasing CNI tax for those companies whose operations are based in other states.
For tax years beginning after December 31, 2008, the Net Operating Loss deduction for CNI is limited to the greater of 15% of taxable income or $3 million. For tax years beginning after December 21, 2009, the NOL deduction is limited to the greater of 20% of taxable income or $3 million.
Tax Amnesty: The budget provides for a tax amnesty program that will run from April 26, 2010 through June 18, 2010. Under this program, 50% of interest and 100% of penalties on all eligible taxes that are delinquent as of June 30, 2009 are waived for taxpayers who file returns and pay delinquencies (including the 50% of interest due). Eligible taxes include any tax administered by the Pennsylvania Department of Revenue and delinquent as of June 30, 2009. Amnesty applies to tax liabilities for five years prior to June 30, 2009 for taxes where no return has been filed, no payment has been made and the taxpayer has not been contacted by the Department of Revenue regarding unfiled returns or unpaid tax. Amnesty also includes taxes which a return has been filed, the tax was underreported and the Department has not contacted the taxpayer regarding the underreported tax. Taxpayers participating in this amnesty program are barred from participating in any future tax amnesty programs.
Sales/Use Tax: Effective October 8, 2009 the sales/use tax rate in the City of Philadelphia is increased from 7% to 8%. The additional 1% increase is scheduled to expire June 30, 2014. Effective October 9, 2009 the sale or use of helicopters and helicopter parts is exempt from Pennsylvania sales and use tax.
Tax Credits: The budget reduces the amount of funding available for several Pennsylvania tax credit programs including:
- Neighborhood Assistance Program
- Job Creation Tax Credit
- Research and Development Tax Credit
- Education Improvement Tax Credit
- Film Production Credit
Other: The budget also includes provisions for a new gross receipts tax on managed care organizations that are parties to Medicaid contracts, increases the cigarette tax to $1.60 per pack from $1.35 per pack and will now impose this tax on "little cigars". The budget also includes provisions to accelerate the payment of Pennsylvania withholding by certain employers and accelerates the payment of sales/use tax to a semi-monthly basis by businesses whose sales/use tax for the third quarter of 2008 is $25,000 or more.